- We re-affirm our
OVERWEIGHT rating on the auto sector: Preliminary July numbers released by MAA
look strong, registering at 46,637 units - excluding Proton sales (which have
yet to be submitted). We have raised FVs for auto stocks under coverage by
14%-15% and our top picks are UMW (BUY, FV: RM12.70/share) and MBM (BUY, FV:
RM5.40/share) as proxies to strong sales and recovering production.
- Industry may have
hit record sales in July led by Proton and Honda: Based on our channel checks,
we estimate Proton July sales at the year’s record of 15,000 units (+11% MoM,
+23% YoY). This will bring industry sales to 61,635 units, which is the
strongest achievement yet for 2012, representing a 9% MoM growth and +23% YoY.
While the strong sales may be attributable to pre-Raya delivery rush, notably,
July 2012 sales are the second highest monthly volume ever achieved by the industry
after the 63K unit sales achieved in March 2011 (just before the supply chain
crisis hit the industry). The strong numbers were also boosted by Honda’s sales
recovery, which hit 5K units in July (+85% MoM, +93% YoY).
- Annualised sales
slightly ahead of expectation: Year-to-July sales have reached 362,812 units,
and if annualised (at 621,963 units, +4.4% YTD), would be 2% ahead of our
full-year forecast of 607,625 units and 1% ahead of MAA’s forecast of 615K
units. The strong sales look set to be sustained by new volume launches over
the next 12 months, i.e. Almera launch
in 4Q12, Perodua Viva launch in 2013 and Toyota Vios full model change, also in
early 2013. Having said that, we expect Vios sales to soften in the next few
months ahead of the Almera launch (competitor in the same segment), but
Toyota’s absolute monthly volumes should remain unscathed given a boost from
new Camry sales. This also suggests improving auto margins in the coming
quarters for UMW, given a higher mix of the higher margin Camry.
- Reversal of
misfortune for auto part players?: Production improved further in July, i.e.+10% MoM and +0.4% YoY to reach 53,690
units, which underpins an industry production recovery off weak numbers in
2Q12. Proton, which has been a particular drag to industry production – given
DRB’s decision to run down Proton inventories – saw production rise 15% MoM to
14,521 units from 12,584 in June. Industry production-to-sales ratio improved
to 87% from 83% in June 2012, albeit still below 106% achieved in July 2011,
suggesting significant room for improvement in the coming months.
- Fair values raised
14%-15% as we roll over valuations to FY13F: Besides DRB, auto parts players,
particularly MBM (FV raised from RM4.70/share to RM5.40/share), is a proxy to
the strong Proton sales. MBM was hard
hit by weak production at Proton in 2Q12 and a reversal of this trend underpins
our expectation of a strong recovery in 3Q12 earnings. Additionally, we like
MBM for its move up the value chain into vehicle assembly from a mere
dealership operator at present. Significant valuation re-rating should
accompany increasing newsflows on this front over the next 6 month off a low
valuation base: 8x FY13F PE vs. peers’ 11x. From a sector perspective, much
improved industry visibility given strong sales, upcoming new model launches
and strong bookings are strong catalysts as expectations shift further out. We
also like UMW (FV raised to RM12.70/share from RM11/share), as a play into
strong cyclical earnings upward trend, particularly at Toyota given aggressive introductions
of new models and an upcoming strong replacement cycle in 2013 off previous
record volume of 101,629 units achieved in 2008 (assuming a 5-year replacement
cycle), underpinned by launch of the new Vios. Meanwhile, our FVs for APM and
TCM are under review pending a meeting with management.
Source: AmeSecuities
No comments:
Post a Comment