We are maintaining our Neutral rating on the automotive
sector for 2Q12 given our view that the 1H will still likely remain subdued for
auto sales as the market adjusts to Bank Negara’s more stringent lending
guidelines for hire purchase loans as well as the normalisation of supplies
after the Thai flood last Nov. We expect increased competition among the
automotive companies during this period to make up for lost sales after the
slowdown in production last year, particularly between the Japanese marques and
Continental brands.
That said, we are
keeping our total industry volume (TIV) sales forecast unchanged at 613,674
units (+2.3% growth), with a rebound likely in mid-2H of the year after the
expected slowdown in the 1H, driven by pent-up demand, a full scale recovery
for Thai auto output and the industry’s
still positive long term dynamics. More opportunities to realign one’s
portfolio to the sector should be available only then, hence our Neutral call
on the sector remains for 2Q12.
As for stock picks, we prefer MBM Resources (OUTPERFORM; TP:
RM5.38) given its current low valuation relative to its peers and potential
catalysts from its Daihatsu tie-up to set up an electric automatic transmission
plant. In line with our sector Neutral stance, we are maintaining our MARKET
PERFORM calls on UMW (TP: RM7.45) and Tan Chong (TP: RM4.67). However, we have
a case-specific ACCEPT OFFER recommendation on Proton at RM5.50.
Household debt an
issue? Of late, the issue of rising
household debts in the country (which
has risen to
77.6% in 3Q11)
as well as
Bank Negara's action
in imposing more stringent financing conditions for hire
purchase loans (as part of its overall move to keep the rising household debts
level and consumer loans in check) has raised concerns on its impact on auto
sales in the
months ahead. But
our affordability study indicates the average Malaysian household can
still meet all their current major debt commitments, so purchase of a car is
still within their means. We also expect the tighter lending guidelines to work
itself out in 2H12. (See our upcoming Auto Sector update for a more detailed
analysis).
TIV February sales
rebounded by 7.5% MoM. There were initial fears that the impact of Bank
Negara’s action would have a big adverse impact to the industry and auto sales,
especially when the total industry
volume (TIV) sales
in January fell
by a strong
25.3% YoY. However, February TIV
sales have since recovered with a rise of 7.5% and 9.0% on a MoM and YoY basis.
Nonetheless, we believe there would always be a pent-up demand should auto
sales fall too long or too much at any single time which has prompted us to
maintain our total industry volume (TIV) sales forecast of a rise of 2.3% for
the whole year, with a rebound likely in the 2H after an expected slowdown in
the 1H.
Moving trend for
continental cars. Meanwhile, despite
the negative news which struck the automotive industry this year, we believe
2012 would be a crucial year for the automakers to pick up their lost sales and
market shares after the slowdown in production last year. However, we expect
increased competition among the
automotive companies during this period, particularly between the Japanese marques and Continental brands. We already
observe that continental car marques have increased their local market share
since Nov 2011 which as of the YTD, continental cars’ market share has
increased from 8% to 12% at the expense of Japanese cars, which saw their
market share shrinking 92% to 88%.
Autoparts moving out? Another trend that we have observed lately is
that the local autoparts players are slowly diversifying out of their core business in auto part manufacturing,
despite more foreign marques likely localising their assemblies ahead. For instance,
autoparts player EPMB recently acquired
Maju Expressway SB for its toll concessions while Delloyd Ventures has moved to
invest into the plantation business. We believe this is due to tougher
environment for the pure autoparts players which are highly dependent on the
domestic automotive industry. However, we do not see a major impact on the
carmakers as they have the size and strength to source for autoparts both locally
and abroad.
Source: Kenanga
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