Malaysian Automotive Industry
Automobile (UNDERWEIGHT) FEB 16: DRIVING DOWNHILL
February sales volume continues to be weak. According to data from the Malaysian Automotive Association (MAA), auto sales in February was down 24.8% yoy and 15.1% mom to 37,876 units – the lowest recorded since Aug 13. We attribute the yoy and mom declines to: a) a frantic close to 2015 driven by the front-loading by consumers in anticipation of the hike in car prices this year and
aggressive promotional campaigns by carmakers. Dec 15 sales reached 69,401 units, the highest total industry volume (TIV) recorded in 2015, b) a shorter working month due to the Lunar New Year, as well as c) cautious consumer spending on big ticket items amid rising living costs. Both national and non-national marques saw almost similar quantum of mom and yoy declines in February.
The national segment sales volume was down 15% mom led by Proton’s decline of 23.2% mom. Meanwhile, Perodua sales volume was down by a much lower quantum of 9.8% mom. On a yoy basis, sales volumes of both Proton and Perodua were down 28% and 24.6% respectively. On a side note, we gather that Proton will be launching four models this year, of which three are sedans.
The non-national vehicle segment sales volume dropped 23.2% yoy and 15.1% mom to 17,310 units in the February month. All these carmakers recorded mom and yoy declines with Honda being the most resilient, whereby:
a) Toyota sales volume dropped 2.1% mom and 41.5% yoy to 2,917 units,
b) Honda sales volume declined 2.2% mom and 7.1% yoy to 5,616 units,
c) Nissan sales volume was down significantly by 24% mom and 21.1% yoy to 2,773 units,
d) Not least, Mazda sales volume was down 42.2% mom and 21.3% yoy to 782 units.
Margin compression not over yet: high inventory, aggressive A&P. Amid the cautious consumer spending on big-ticket items, we continue to see margin compression in 1H16 against the backdrop of: a) high inventory levels, and b) still-weak ringgit against major currencies, whereby carmakers can only pass on partial costs to the end consumers. We note that all the major marques are having
promotions in the form of cash rebates, free service, etc this month, which indicates the state of high inventory levels. For instance, Volkswagen Malaysia are currently clearing their 2014/2015 models with its Polo, Jetta and Passat priced at only RM69,888, RM88,888 and RM115,888 respectively from RM89,888, RM134,888 and RM173,888.
Cut 2016 TIV forecasts to 640,000 units (-4% yoy) from 653,000 units. Although there is a strong pipeline of new models and abundant discounts and promotions in 2016, there is a downside risk from the still-weak consumer sentiment amid high inflationary pressure. We believe auto sales volume will stage a rebound in the month of March due to the longer working month and the offerings of promotions and discounts. MAA had earlier predicted that auto sales volume could decline 2.5% yoy to 650,000 units.
Maintain UNDERWEIGHT on the sector, as we see no sign of re-rating catalysts in the near to medium term, given the still-weak consumer sentiments that point to tepid sales, the weak ringgit and the continual aggressive discounts and promotions to spur sales which will further compress automobile players’ margins. We continue to be negative on UMW Holdings (UMWH MK/SELL/RM6.56/Target: RM6.00). We expect Toyota sales to remain tepid amid intensified competition in a saturated market, coupled with the still-weak ringgit that will continue to put pressure on its margins. Outlook for its 55.7%-owned UMW O&G continues to look gloomy against the recent sharp fall in crude oil prices that will continue to drag down daily charter rates and utilisation of its jack-up rigs
source: UOBKayhian 21/02/2016