Automotive Sector Strong December Exceeds Expectations

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1 S E C T O R U P D A T E Friday, January 18, 219 FBMKLCI: 1, Automotive Sector Strong December Exceeds Expectations THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Overweight (Maintain) Abel Goon Tel: abelgoon@ta.com.my December Sales Exceeds Expectation Total Industry Volume (TIV) in December came in at 48.2k units (MoM: -.2%, YoY: -11.9%). The decline was mainly attributable to less aggressive year-end sales following the strong sales made during tax holiday period (June to August). Furthermore, backlog built during the tax holiday period also resulted in elevated unit sales for some marques in the months following tax holiday. Nevertheless, 218 TIV of 598.7k units (+3.8% YoY) slightly exceeded expectations, accounting for 11.6% and 12.3% of ours and MAA s full-year forecast. Strength in Passenger and Commercial Car Sales 218 recorded strong passenger car sales of 533.2k units (+3.6% YoY) and robust commercial car sales of 62.k units (+5.7% YoY). The growth in passenger car sales was largely supported by Perodua (+1.9% YoY), BMW (+13.1% YoY), Nissan (+1.1% YoY) and Mazda (+66.8% YoY) underpinned by their exciting car models and increased purchases from tax holiday. On the other hand, growth in commercial car sales was supported by Hino (+16.1% YoY) and Mitsubishi (+18.4% YoY). MAA Revises Forecasts Given stronger than expected TIV, MAA revised its forecasts upwards in FY19/2/21/22 to 6k/612k/625k/639k from 597k/69k/623k/637k. Note that MAA reduced its forecast for FY18 to 585k units in July 218. FY19 forecast translates to.3% YoY growth from FY18 TIV of 598k units. MAA attributes the flattish growth to the delay in pricing approvals from the new government and weaker business sentiment given uncertainties arising from trade tensions between the US and China. Perodua SUV Booking Begins Bookings for the new Perodua SUV, Perodua Aruz began in January 219. To recap, The Aruz has 2 variants priced at RM72.2k for the X variant and RM77.2k for the AV variant. Boasting a fuel efficiency of 15.6km/litre, Perodua expects to sell 2.5k units per month in 219. We understand that the Aruz is based off the Toyota Rush. We believe the monthly sales target is achievable and expect UMW and MBM to be the main beneficiaries of the new Perodua SUV launch. Maintain Overweight We maintain our Overweight stance given the strong consumer sentiment. We believe the consumer index will continue to exceed the threshold level of optimism after SST s implementation. Furthermore, prices of cars have increased less than what was previously expected. Our TIV forecast of 598k units in FY19 is revised upwards to 67k units (+1.5%). Our forecast reflects a slight recovery in TIV as consumer sentiment improves this year, following the removal of GST. On the other hand, TIV growth may be dampened by sustained stringent HP loan requirements. We maintain Buy on Pecca (TP: RM1.15), MBM (TP: RM3.19), BAuto (TP: RM2.59), Sime Darby (TP: RM 2.65) and UMW (TP: RM6.55). Page 1 of 6

2 Figure 1: Breakdown of TIV Dec-17 Nov-18 Dec-18 % MoM % YoY 12MFY17 12MFY18 % YoY Passenger 48,67 43,364 42,426 (2.2) (11.7) 514, , Commercial 6,652 4,918 5, (13.4) 61,955 65, TIV 54,719 48,282 48,188 (.2) (11.9) 576, , Figure 2: Breakdown of TIV by segments Passenger vehicles Dec-17 Nov-18 Dec-18 % MoM % YoY 12MFY17 12MFY18 % YoY National Perodua 2,18 21,11 18,42 (12.8) (8.8) 24, , Proton 4,82 4,82 5, ,992 64,744 (8.8) Total 24,982 25,93 24, (7.4) (3.9) 275, , Non-national BMW 1,1 1,8 1,17 (5.8).7 1,618 12, Mercedes 1, , (1.2) 12,68 13, Honda 11,221 7,1 8, (28.5) 19,511 12,282 (6.6) Nissan 1,5 2,31 2, ,949 21, Toyota 4,85 1,952 2, (56.4) 47,615 43,446 (8.8) Mazda 678 1,881 1,45 (22.9) ,454 15, VW (62.) (67.4) 6,536 7,1 7.1 Others 1,971 1,817 1, ,37 25, Total 23,85 17,434 18, (2.2) 238, , Grand Total 48,67 43,364 42,426 (2.2) (11.7) 514, , Commercial vehicles Dec-17 Nov-18 Dec-18 % MoM % YoY 12MFY17 12MFY18 % YoY Hino (33.8) 5,2 5, Isuzu 1, , ,838 11, Mitsubishi (26.) 6,726 7, Nissan (22.1) (51.4) 7,25 6,654 (7.6) Toyota 2,388 1,883 2, (8.1) 21,877 22,15 1. Mazda (87.5) (97.) (1.1) Others ,31 11, Total 6,652 4,918 5, (13.4) 61,955 65, Figure 3: Breakdown by main manufacturers/distributors UMW Dec-17 Nov-18 Dec-18 % MoM % YoY 12MFY17 12MFY18 % YoY Toyota (Passenger cars) 4,85 1,952 2, (56.4) 47,615 43,446 (8.8) Lexus (35.2) 953 1, Toyota (Commercial) 2,388 1,883 2, (8.1) 21,877 22,15 1. Total 7,346 3,891 4, (4.4) 7,445 66,562 (5.5) Perodua 2,18 21,11 18,42 (12.8) (8.8) 24, , Grand total 27,526 25,1 22,782 (8.9) (17.2) 275, , Tan Chong Dec-17 Nov-18 Dec-18 % MoM % YoY 12MFY17 12MFY18 % YoY Nissan (Passenger cars) 1,5 2,31 2, ,949 21, Renault ,9 7.4 Nissan (Commercial) (22.1) (51.4) 7,25 6,654 (7.6) Total 2,324 2,547 3, ,746 29, Bermaz Auto Dec-17 Nov-18 Dec-18 % MoM % YoY 12MFY17 12MFY18 % YoY Mazda (Passenger cars) 678 1,881 1,45 (22.9) ,454 15, Mazda (Commercial) (87.5) (97.) (1.1) Total 711 1,889 1,451 (23.2) ,73 16, MBM Resources Dec-17 Nov-18 Dec-18 % MoM % YoY 12MFY17 12MFY18 % YoY VW (62.) (67.4) 6,536 7,1 7.1 Volvo (1.9) (33.1) 1,24 1, Mitsubishi (26.) 6,726 7, Hino (33.8) 5,2 5, Daihatsu Total 2,472 1,811 1,566 (13.5) (36.7) 2,91 23, Page 2 of 6

3 Figure 4: TIV vs. YoY growth unit TIV (LHS) YoY Growth (RHS) 8, 7, 6, 5, 4, 3, 2, 1, 5% 4% 3% 2% 1% % -1% -2% -3% -4% Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Oct-18 Figure 5: Passenger Vehicle Market Share (National vs. non-national manufacturers) 75% 7% National Non-National 65% 6% 55% 5% 45% 4% 35% 3% May-11 Sep-11 Jan-12 May-12 Jan-13 May-13 Sep-13 Jan-14 Sep-14 Jan-15 May-15 Sep-15 May-16 Sep-16 Jan-17 May-17 Jan-18 May-18 Sep-18 Figure 6: Total Market Share by Brand % 6 Proton Perodua Toyota Nissan Honda Others Mazda Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Nov-12 Jan-13 Mar-13 May-13 Sep-13 Nov-13 Jan-14 Mar-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Nov-17 Jan-18 Mar-18 May-18 Sep-18 Nov-18 Page 3 of 6

4 Figure 7: TIV (MoM change) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec *+ : increase, - : decrease Hari Raya Month Figure 8: Cumulative Sales Volume (YoY growth) Figure 9: TIV On Half Year Basis (unit) 12M18 11M18 1M18-7% Honda -4% -1% 5% Nissan 3% 2% -6% Toyota -2% 3% 11% Perodua 13% 12% -9% Proton -11% -11% -15% -1% -5% % 5% 1% 15% 35, 3, 25, 2, 15, 1, 5, 1H 2H Figure 1: Monthly Sales Volume by Brand (unit) Figure 11: Market share (%) 25, 2, 15, 1, 5, 4,82 4,82 5,598 Dec-17 Nov-18 Dec-18 2,18 21,11 18,42 11,221 7,238 3,835 4,31 2,264 2,57 2,87 7,1 8, ,889 1,451 8,33 7,21 7,536 Proton Perodua Toyota Nissan Honda Mazda Others % Dec-17 Nov-18 Dec Proton Perodua Toyota Nissan Honda Mazda Page 4 of 6

5 Figure 12: YTD Sales Volume Breakdown by Brand (unit) Figure 13: YTD Market Share (%) 25, 24, ,243 12MFY17 12MFY18 % MFY17 12MFY18 2, 3 15, 1, 5, 7,992 64,744 69,492 65,551 27,154 28,61 19,511 12,282 9,73 16,38 84,856 94,246 Proton Perodua Toyota Nissan Honda Mazda Others Proton Perodua Toyota Nissan Honda Mazda Others Figure 14: National vs. Non-national (Sales Volume) Figure 15: National vs. Non-national (Market share) 45, National Non-National 4, 35, 3, 25, 2, 15, 1, Jun-11 Nov-11 Apr-12 Feb-13 Dec-13 Oct-14 Mar-15 Aug-15 Jun-16 Nov-16 Apr-17 Feb-18 Dec-18 National Non-National 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Jun-11 Nov-11 Apr-12 Feb-13 Dec-13 Oct-14 Mar-15 Aug-15 Jun-16 Nov-16 Apr-17 Feb-18 Dec-18 Figure 16: Forecast for Passenger and Commercial Cars Figure 17: Forecast for TIV Figure 18: Peers Comparison Company Price Tgt.Price Mkt Cap Upside PE (x) PB(x) Dividend Yield (%) ROE (%) Call (RM) (RM) (RM mn) (%) CY19 CY2 CY19 CY2 CY19 CY2 CY19 CY2 BAuto Buy 2, MBM Resources Buy 1, Pecca Buy SDB Buy 15, UMW Buy 6, Weighted Average Page 5 of 6

6 (THIS PAGE IS INTENTIONALLY LEFT BLANK) Sector Recommendation Guideline OVERWEIGHT: The industry, as per our coverage universe, is expected to outperform the FBMKLCI over the next 12 months. NEUTRAL: The industry, as per our coverage universe, is expected to perform in line with the FBMKLCI over the next 12 months. UNDERWEIGHT: The industry, as per our coverage universe, is expected to underperform the FBMKLCI over the next 12 months. Stock Recommendation Guideline BUY : Total return within the next 12 months exceeds required rate of return by 5%-point. HOLD : Total return within the next 12 months exceeds required rate of return by between -5%-point. SELL : Total return is lower than the required rate of return. Not Rated: The company is not under coverage. The report is for information only. Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting. Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. As of Friday, January 18, 219, the analyst, Abel Goon, who prepared this report, has interest in the following securities covered in this report: (a) nil Kaladher Govindan Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 525 Kuala Lumpur Malaysia Tel: Fax: Page 6 of 6