- Anticipating very strong May TIV; raising sector to
OVERWEIGHT: We upgrade the auto sector to OVERWEIGHT from NEUTRAL, ahead of the
announcement of May TIV this afternoon. Our top picks are UMW (BUY, FV:
RM10.00/share) (upgraded on 19 April 2012) and MBM (BUY, FV: RM3.60/share). APM
remains a BUY (FV: RM6.50/share) for its 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. Three of
four stocks under our auto coverage are now rated BUYs.
- May TIV to mark strong rebound: May auto statistics are
expected to be announced later today. We expect a very strong total industry
volume (TIV) of 55,453 units, led by Proton (+40% MoM thanks to its new Preve)
and Perodua (+20% MoM). This represents a strong 16% rebound MoM following
April’s 11% sequential contraction. On a YoY basis, May TIV should represent a
20% growth, which signifies the long-awaited rebound in auto sales. YTD TIV of
241,727 units marks a rapid narrowing in contraction (-5.4%) compared to YTD
April contraction of 11%. We see the YoY recovery momentum sustaining driven
by:- (1) New model introductions, i.e. the Preve in April, Honda City facelift
in April, Honda Civic full model change in 2H12, Toyota Camry full model change
in June, Nissan Almera in 4Q12, and Perodua Viva potentially in 1Q13; (2)
Supply chain crisis only started to impact the industry in 2011 from May
onwards; (3) Normalising impact of longer loan approval period.
- Perodua’s strategic shift bearing fruit: While we are cautious about the impact of
tighter loan approvals since early this year, Perodua’s strong MoM rebound
seems to suggest that the impact of a longer loan approval period (which is on
rolling basis) has normalised. Note that Perodua is the largest auto player in
the market (31% market share) and plays a large role in swaying TIV numbers. On
top of this, we believe Perodua’s sales recovery has also been driven by its
strategic shift to focus on the Myvi model, instead of the Viva as the former
entails buyers with better credit backgrounds. What this means is that
Perodua’s earnings recovery will not only be driven by pure volume growth, but
also an improvement in margins on the back of:- (1) A better model mix; (2) New
MyVi generating better margins vs. previous generation MyVi.
- New Camry launch further boosts UMW auto’s strong recovery
(BUY, FV: RM10.00/share): UMW has continuously outperformed the industry since
January. On a YoY basis (for May), we believe it will continue to lead non-national
marques with a 49% YoY growth (+16% YTD vs. industry: -5%). The new Camry
(launched 1 June 2012) has generated over 2,000 bookings in just half a month,
versus the sales target of 1,500/month and 2011 average Camry sales of 645
units/month. This should underpin UMW’s growth momentum in the coming quarters,
on top of the fact that the new localised Camry generates up to RM20K-30K cost
savings per unit. Key catalysts: (1) Earnings revisions – our forecast are
5%-6% above consensus; (2) Potential M&As in the auto and O&G sectors.
- MBM (BUY, FV; RM3.60/share) – room for earnings upgrades:
Besides UMW (which has a 38% stake in Perodua), MBM is the other key listed
proxy to Perodua with an effective 23% stake – which is undervalued at an
implied valuation of just 7x FY12F earnings vs. sector PE of 10x. Additionally,
MBM (via Hirotako, a key safety systems supplier in the local market) is a
proxy to Proton’s rapid sales recovery, which is driven by a strong take-up of
its newly launched Preve model. Our projections for Hirotako is for Preve sales
of,2,950 units/month vs.11,310 bookings so far. Key catalysts: (1) Strong Preve
sales – which will drive Hirotako earnings (accounts for 44% of core operating
profit); (2) Newsflows on venture into vehicle assembly within the next 6
months.
Source: AmeSecurites
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