Mar 25, 2014

Review & Outlook of the Automotive Sector: Malaysia

HIGHLIGHTS
•  Malaysia: In February 2014, total industry volume (TIV) on-year growth was higher by 12.6%yoy at 50.7k units. In addition,  the  TIV  rose  sequentially  by  0.9%mom  due  in  part  to  better  sales  performance  of  national  carmakers, namely Perodua and Proton.

We continue to reiterate our NEUTRAL recommendation on the domestic Automotive Sector with an unchanged 2014 TIV forecast of 668,000 units. We keep NEUTRAL on all stocks under our coverage.

•  Japan: TIV growth remained high at +18.4%yoy in February 2014 arguably fuelled by consumers buying ahead of the sales tax increment which is scheduled to take effect in April 2014.
•  South Korea: TIV rebounded from a 4 consecutive months of decline to 2.1%yoy in January 2014 at 107.2k units thanks to improved consumer sentiment, expansion of demand on RV cars and new model release effect.
•  Thailand:  In  January  2014,  TIV  plunged  -45.5%yoy  to  68.5k  units  as  consumers'  purchasing  decisions  was deterred by prolonged political upheaval and uncertain economic conditions.

below: Summary Sales and Production Data (click to enlarge)

asia car sales 

MALAYSIA
Total  industry  volume  was  higher  year-on-year  in  February  2014. According  to  the  Malaysian  Automotive Association (MAA), Total Industry Volume (TIV) was up by 12.6%yoy at 50.7k units in February 2014. Similarly, the TIV rose  sequentially  by  0.9%mom  attributable  in  part  by  the  better  sales  performance  of  national  carmakers,  namely
Perodua and Proton.

Perodua  entrenched  its  overall  lead  position  with  higher  market  share. Perodua  entrenched  its  market  lead position in February 2014 as it garnered a bigger market share at 30.8%, vis-à-vis 24.1% in January 2014. The number of units sold by Perodua in February 2014 was 15.6k units, representing an increase of 6.7%yoy. Meanwhile, Proton also  recorded  an  improvement  in  its  market  share.  The  pioneer  national  carmaker  saw  its  market  share  climbed  to 21.1% in February 2014, a gain of 1.7ppts relative to its share a month ago. It sold more vehicles at 10.7k units, or 4.4%yoy higher than the corresponding period last year.

below: Malaysia's Monthly TIV (click to enlarge)

malaysia car monthly

Forecasts and Recommendations for Bursa-listed companies

Reaffirm 2014 TIV forecast of 668k. While it is a bit too early for a meaningful extrapolation, the annualised year-todate TIV amount to only 606k vis-à-vis our 2014 TIV forecast of 668k units. Nonetheless we expect vehicle sales to gradually pick up pace in the coming months. The sales outlook for March, for example, is expected to be better due to the  longer  working  days,  financial  year  end  (FYE)  delivery  rush  among  car  companies  with  FYE  March,  as  well  as introduction of new models.

Summary Recommendations of Stocks Under Coverage (click to enlarge)

car related stocks 
Nonetheless, compared to last year, the growth momentum in 2014 may be relatively muted given the recent round of subsidy rationalization measures, i.e. increase in fuel price, removal of sugar subsidy and increase in electricity tariff, which may result in consumers being more cautious with their spending. In light of these factors, our forecasted 2014
TIV growth is a smaller +1.9%yoy at 668.0k units.

Reiterate NEUTRAL.We maintain  NEUTRAL on the Automotive Sector  with all stocks under our coverage, namely UMW Holdings Berhad (UMWH), MBM Resources Berhad (MBM) and Tan Chong Motor Holdings Berhad (TCM) kept on NEUTRAL at RM13.15, RM3.94 and RM6.38 respectively.

by MIDF