Auto Sector - Non-nationals recovering, national marques hit NEUTRAL

- March TIV staged a sequential rebound, growing by 22% MoM to 53,576 units. The growth was largely led by the non-nationals. Toyota saw a 35% MoM growth, while Nissan saw a 24% sequential sales uptick. Meanwhile, Honda, which had its first month of local production since the Thai floods late last year, saw sales volume more than tripling in March.

- The new Toyota Avanza (launched January 2012) as well as the Altis and Camry drove the bulk of Toyota’s MoM volume growth. The Avanza, in particular, saw March sales more than doubling from 497 units in February to 1,314 units in March. Notably, Toyota was the only player among the 5 largest local auto makers to have shown volume growth YTD (+7%). The industry in comparison was down by 13% YTD.

- Honda saw the revival of sales of its key model, the Honda City, in March. However, sales of the other key models, i.e. the Accord and the Civic, have yet to show any recovery. We note that Honda’s plants, both in Malaysia and Thailand, only recommenced production in March following 6 months of closure. We see room for further volume improvement at Honda in the coming months. 

- While March’s sequential rebound was expected due to a shorter working month in February, we believe it was a decently strong performance, considering tighter loan approvals since January. In fact, March TIV is 7% higher than the average monthly sales of circa 50,000 units in 2011. While annualised 1Q12 TIV of 554,148 is far weaker than our forecast of 605,981 units and MAA’s 2011 projection of 615,000 units, bear in mind that 1Q12 numbers were dragged by weak Jan-Feb period, given a mix of knee-jerk reaction from longer loan approval timeline, CNY festivities in January and supply bottleneck. 

- We believe sales numbers could sustain, if not improve from current levels in April primarily driven by a recovery in CKD kit and CBU supplies from Thailand (which accounts for 70%-80% of local auto players’ imports). Furthermore, we expect the rollout of new models such as the Proton Preve (in April), Toyota Camry (in June) and the revival of Honda sales & production (YTD: -82%) to drive TIV going forward. For the meantime, we leave our 2012 TIV projection unchanged.

- We maintain our Neutral rating on the sector. APM (BUY, FV: RM6.50/share) and MBM (BUY, FV: RM5.80/share) remain our top sector picks. Indeed, Perodua sales have been hit (-2% YTD) – albeit a lot less vs. Proton’s -22% YTD. However, the consolidation of Hirotako earnings should more than offset any potential earnings contraction. Additionally, MBM’s stake in Perodua is still deeply undervalued and any corporate exercise to unlock such value should more than offset temporary earnings weakness from Perodua. 

Source: AmeSecurities