- May TIV released by MAA underpins our upgrade of the auto
sector to OVERWEIGHT yesterday. We re-affirm our top sector picks – UMW (BUY,
FV: RM10/share) and MBM (BUY, FV: RM3.60/share) as key proxies to the strong
recovery in auto sales, in particular, Perodua and Proton. APM remains a BUY
(FV: RM6.50/share) for defensive earnings and strong dividend yields, while Tan
Chong remains a HOLD (FV: RM3.90/share) given depressed earnings momentum as a
result of margin compression, market share erosion locally (albeit temporary
until the introduction of its B-segment model in 4Q12) and a challenging
environment faced by its Indochina operations.
- Hitting an inflection point: May TIV registered at 58,299
units (beating our already bullish forecast of 55K), representing a 22% MoM
increase and +26% YoY. May TIV marks the strongest growth seen so far this year
both on a YoY and MoM basis. More importantly, May numbers also mark the first
significant YoY rebound following 5 months of contraction since Dec 11. The sequential
growth was led by Proton (+40 MoM) and Perodua (+23% MoM). In the non-national
segment, Honda led TIV growth (+49% MoM) as supplies gradually recover. YTD TIV
of 244,573 marks a rapid narrowing in contraction (-4%) compared to YTD April
contraction of 11%.
- What drove the rebound?: Proton’s tremendous sales growth
was driven largely by the Preve (launched 16 April 2012) while we believe
Perodua’s MoM rebound was driven largely by its strategic shift to focus on the
MyVi model, instead of the Viva as the former entails buyers with better credit
backgrounds. Additionally, on the non-national side (which is less hit by
tighter lending guidelines) also showed a strong recovery out of the supply
chain crisis, which normalised in March-April period. We also believe there has
been some normalisation to the impact of a longer loan approval period.
- Is the rebound sustainable?: We are cautiously optimistic
that TIV growth will sustain, albeit not necessarily as strong as May’s MoM
growth which comes off a weak base in April. However, we believe on a YoY
basis, TIV in the coming months may further strengthen given that the supply shortage
impact from the March 2011 Japan earthquake only started impacting the industry
since May 2011. Furthermore, recovery from the Japan earthquake (in Jul-Aug
2011) was short-lived in view of the supply disruption caused by the Thai
floods in 4Q11.
- New model launches underpin sector recovery: New model
launches this year will further underpin TIV growth going forward. Among key
new models slated for launch are Honda City’s facelift in June 2012, new Honda
Civic in 2H12, Nissan Almera 4Q12 and the Toyota Camry in June. The Preve and
Camry have generated strong bookings (11,310 units and >2,000 units, respectively)
and these numbers will flow through in the coming months. Note that some of
these new launches were delayed given the supply chain disruptions for the most
of last year.
- TIV projection raised, sector is a catch-up play: We raise
our TIV projection slightly to 607,625 units (from 605,981 units previously).
Our new projections imply a 1.3% YoY growth from +1% previously. We see room
for further upgrades depending on the strength of response to upcoming new
model launches. More importantly, the sector’s earnings cycle is on an upward
trend beyond mere volume growth, which is accompanied by margin expansion from
better plant utilisation, improved model mix and higher margins attained from
new models. More importantly, the earnings recovery comes off a depressed
valuation base as the sector has lagged the broader index’s recovery since late
2011: (1) UMW: 11.6x FY12F PE vs. 14x mid cycle PE; (2) MBM: 7.6x FY12F PE vs.
10x sector average PE; (3) APM: 7x FY12F PE vs. 10x sector PE and against 7%
net dividend yield.
Source: AmeSecurities
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