Malaysia Automotive - A short-lived recovery

Author: kltrader   |   Publish date: Thu, 19 May 2016, 11:42 AM 

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Sees downside risk to our 2016 TIV forecast

Apr 2016 TIV sales made a U-turn and headed back to a MoM contraction, recording just 42.2k units (-14% MoM, -7% YoY). At this juncture, downside to our 2016 TIV forecast of 620k units (-7% YoY) is likely, should monthly TIV sustain below the 55k-unit level going forward. We keep our TIV forecast unchanged for now but tactically downgrade the sector to NEGATIVE based on a bottom-up approach (SELL rating on UMWH and TCM unchanged). We remain BUYers of Pecca and BAuto.HOLD on MBM.

Shortfall in April was a negative surprise

MoM contraction was seen across the board for the mass market segment, led by Nissan (-31% MoM) as car prices saw a hike of 3%-7% beginning Apr. The bright spot remains in the premium car segment (i.e. Mercedes Benz, BMW and VW); unfazed by poor consumer sentiment. VW sales jumped an impressive 106% YoY on heavy discounting (MYR20k- 53k/22%-34% discounts) for its CKD models (i.e. Polo, Jetta, Passat). Interestingly, for 4M16, Honda has overtaken Proton to be the No.2 largest marque by sales volume for the first time in history. 4M16-YTD, Toyota (-2.2ppts) and Proton (-1.6ppts) were the biggest losers in terms of market share; the former affected by lack of new models and the latter by higher rejection rates for HP financing. We are more certain of a pick-up in vehicle sales closer to the Hari Raya festivity in June.

Downgrade the sector to NEGATIVE

Going forward, monthly TIV will need to hit an average of 55.8k units (2015 monthly average: 55.6k units) to meet our street-low 2016 TIV forecast of 620k units; expect downgrades by consensus. We see downside mainly from our 2016 Toyota vehicle sales forecast of 75k units; 4M16 sales of 14.7k units made up only 20% of our estimate. Coupled with persistent weakness in its O&G division, we remain SELLers of UMWH. Our forecasts for UMWH are unchanged pending 1Q16 results due out on 24th May. TCM is also a SELL as sustained losses on weak sales and high component costs will weaken its books.

BUYs on the smaller but promising players

Perodua’s entry into the sedan car market in 2H16 should boost sales. For this, we like recently listed Pecca, the sole supplier of leather upholstery to Perodua. Meanwhile, BAuto remains a BUY, riding on positive sentiment from management’s takeover and potential IPO of its 60%- owned Philippines operation which is seeing strong growth in a growth market (1Q16 TIV: +22% YoY).
Source: Maybank Research - 19 May 2016