AUTO SECTOR (NEUTRAL)

The  TIV for Feb  2012  increased 9%  y-o-y  and 7.5% m-o-m (YTD:  -10.7%) as business activities normalize after the steep 25% y-o-y drop in the previous month. Nonetheless,  the numbers came short of our expectations since we have anticipated sales to pick up as the market gradually adjusts to the stricter lending requirements  for  hire purchase loans. We maintain our NEUTRAL call on the Automotive sector, with UMW  (FV: RM7.88)  and MBM  (FV: RM5.34)  as our top picks, noting the strong rebound  in  the  sales of  these  companies’  marques in February.

Rebounding. After the steep 25% y-o-y drop in the previous month,  the  TIV for Feb 2012  increased  9%  y-o-y  and 7.5% m-o-m (YTD:  -10.7%) as business activities normalize after the festive holidays. Vehicle sales from the passenger segment grew by 5.4% m-o-m  and 6.6%  y-o-y, while the commercial segment grew at a much stronger pace of 26% m-o-m and 30.9% y-o-y. Sub-segment wise, the strongest growth was seen for passenger sedans, MPVs, pick-up trucks and vans.

But short of our expectations. We had earlier expected a sharper  y-o-y and m-o-m rebound of 20-26%. The shortfall was likely due to public holidays and the shorter month of February. Since we expect sales to pick-up  further  moving forward  as  the market adjusts to the stricter lending requirements for hire purchase loans, we therefore make no changes to our TIV numbers (which assumes a mere 1.1% growth) for 2012 for now.

How the top 5 marques  performed. Perodua continued to maintain its pole position with a higher market share of 33.9% (from 29.1% last year), with Proton coming in second at a lower market share of 26.3% vs 28.8% last year, which can be attributed to the impending launch of the Proton Persona replacement. The strongest  vehicle sales growth was seen for both Toyota and Perodua, which recorded double-digit gains y-o-y and m-o-m. Honda continued to see lower sales due to the difficulty in procuring kits and parts from Thailand after the devastating floods, while sales of Nissan cars continued to remain lacklustre.

Maintain NEUTRAL.  Overall, we are still cautious on the macro picture for autos as we think any demand upside would be marginal since: (i) the replacement cycle for new vehicles, which may boost sales, has peaked, (ii) upcoming models may not create enough excitement to sufficiently spur TIV growth, (iii) bankers are tightening lending and becoming more stringent in approving loans, and (iv)  the  consumer sentiment is deteriorating and buyers have become more cautious. We maintain our NEUTRAL call on the Automotive sector, with UMW and MBM remaining our preferred picks.

Source: OSK188