TIV for 9M12 grew by 3.3% y-o-y, better than expected thanks to the recovery in Honda’s production. We raise our TIV forecast for 2012 to 2.5%, in line with MAA’s forecast, driven by Honda and marques with smaller market shares. The boost in numbers does not impact our coverage forecasts as Toyota and Perodua sales remain on track. In light of the upcoming 3Q results season, we advise investors to stay away from autoparts stocks, due to the disappointing sales from Proton, but continue to be invested in UMW. Maintain OVERWEIGHT on the auto sector.
Better than expected, thanks to Honda. Upping forecasts. Total industry volume (TIV) for September was 4.5% higher y-o-y but contracted 11.8% m-o-m as the post-Hari Raya month was seasonall weaker. 3Q TIV, which would be a more appropriate measure to take off the distortive impact from Hari Raya, grew by a stellar 4.1% y-o-y thanks to the higher-than-normalized production from Honda. Recall that Honda only recently recovered from flood disruptions. Assuming that production had normalized for Honda since early this year, normal TIV growth would be 1.3% y-o-y in 3Q 2012. However, with YTD TIV already at 3.3% y-o-y, we deem the thus-far numbers likely to surpass our conservative TIV growth forecast of 1.1% in 2012 as we have highlighted last month. We raise our TIV growth projection to 2.5% from 1.1% in 2012. Our forecast is now in line with that from the Malaysian Automotive Association’s (MAA). Despite nudging up our TIV forecast, we maintain our sales projections for Toyota (including Lexus), Perodua and Nissan. The more optimistic forecasts were largely attributed to stronger sales from Honda and the other marques with smaller market shares.
How the top five marques performed. In 3Q, national automakers Perodua and Proton saw their vehicle sales dropping by 2.6% y-o-y and 12.8% y-o-y respectively, while sales of non-nationals Toyota, Nissan and Honda grew by 6%, 4.6% and 50.7% respectively. On a YTD basis, Toyota (together with Lexus) saw the strongest growth amongst the top five marques, with vehicle sales growing by 17.7%, followed by Perodua at 9.6%.
Excise duties cut in the offing? We do not expect significant market liberalisation from the upcoming national automotive policy (NAP) other than efforts to make Malaysia a production hub for Enhanced Environmentally Friendly Vehicles (EEV). Lately, the Malaysian Automotive Institute, the think tank for Malaysia’s automotive sector, has stressed that Malaysia’s car ownership costs – which include petrol costs, interest financing, insurance and road tax – are much more affordable than those in Thailand and Indonesia. We believe this is part of its efforts to manage public expectations on the possibility that there may not be any reduction in excise duties, or that the scale of the cut would be far less than expected. The price reduction, if implemented, will likely trigger a drop in resale value in the second-hand market given the accelerated depreciation impact, which could in turn deter buyers from trading in their used vehicles for new ones. As such, we think a gradual reduction of less than 5% would be a possible scenario.
Better than expected, thanks to Honda. Upping forecasts. Total industry volume (TIV) for September was 4.5% higher y-o-y but contracted 11.8% m-o-m as the post-Hari Raya month was seasonall weaker. 3Q TIV, which would be a more appropriate measure to take off the distortive impact from Hari Raya, grew by a stellar 4.1% y-o-y thanks to the higher-than-normalized production from Honda. Recall that Honda only recently recovered from flood disruptions. Assuming that production had normalized for Honda since early this year, normal TIV growth would be 1.3% y-o-y in 3Q 2012. However, with YTD TIV already at 3.3% y-o-y, we deem the thus-far numbers likely to surpass our conservative TIV growth forecast of 1.1% in 2012 as we have highlighted last month. We raise our TIV growth projection to 2.5% from 1.1% in 2012. Our forecast is now in line with that from the Malaysian Automotive Association’s (MAA). Despite nudging up our TIV forecast, we maintain our sales projections for Toyota (including Lexus), Perodua and Nissan. The more optimistic forecasts were largely attributed to stronger sales from Honda and the other marques with smaller market shares.
How the top five marques performed. In 3Q, national automakers Perodua and Proton saw their vehicle sales dropping by 2.6% y-o-y and 12.8% y-o-y respectively, while sales of non-nationals Toyota, Nissan and Honda grew by 6%, 4.6% and 50.7% respectively. On a YTD basis, Toyota (together with Lexus) saw the strongest growth amongst the top five marques, with vehicle sales growing by 17.7%, followed by Perodua at 9.6%.
Excise duties cut in the offing? We do not expect significant market liberalisation from the upcoming national automotive policy (NAP) other than efforts to make Malaysia a production hub for Enhanced Environmentally Friendly Vehicles (EEV). Lately, the Malaysian Automotive Institute, the think tank for Malaysia’s automotive sector, has stressed that Malaysia’s car ownership costs – which include petrol costs, interest financing, insurance and road tax – are much more affordable than those in Thailand and Indonesia. We believe this is part of its efforts to manage public expectations on the possibility that there may not be any reduction in excise duties, or that the scale of the cut would be far less than expected. The price reduction, if implemented, will likely trigger a drop in resale value in the second-hand market given the accelerated depreciation impact, which could in turn deter buyers from trading in their used vehicles for new ones. As such, we think a gradual reduction of less than 5% would be a possible scenario.
Earnings outlook and strategy. Proton’s disappointing sales q-o-q and y-o-y are likely to result in a hit on DRB Hicom’s earnings and also drag down component makers. Among stocks within our coverage, this does not bode well for MBM given that it relies on Proton for the sales of its airbags through its subsidiary Hirotako though we expect this impact to be cushioned by higher airbag production thanks to the implementation of the dual airbag policy, which became mandatory effective on 1 July. EPMB and Delloyd Ventures will likewise be hit by Proton’s production decline as they also depend heavily on Proton. UMW and Tan Chong are expected
to report better results y-o-y on the back of higher vehicles sales and we believe UMW could also register improved q-o-q numbers on higher contributions from its oil and gas and equipments divisions. For earnings exposure, we strongly advise investors to buy UMW. Any retracement in MBM’s share price can be an opportunity to accumulate the stock, although preferably after its results are released. Tan Chong’s share price may stay in an overhang for a while, until we have more visibility on what the bookings of its Nissan Almera would be. The launching of the Almera is on schedule on 30 Nov, as is the announcement of its pricing.
Outlook for 2013. Besides the upcoming NAP, we expect the automotive sector to be quiet next year. Growth would be muted given the lack of new key model launches other than facelifts. We expect TIV to grow 1% in 2013 on the back of GDP growth of 4.9%. 2014 would be the year to look out for due to the anticipated launch of the new Perodua Viva and possibly a new Proton line-up.
OVERWEIGHT. While 2013 is expected to be quiet, we see the market as being forward-looking. We maintain our OVERWEIGHT call on the auto sector with UMW (FV: RM11.87) and MBM (FV: RM4.76) as top picks. We like UMW for its market dominance via the Toyota and Perodua marques and the turnaround of its oil and gas segment. Meanwhile, we see a possible rerating for MBM as it moves up the value chain to become an integrated automotive group.
to report better results y-o-y on the back of higher vehicles sales and we believe UMW could also register improved q-o-q numbers on higher contributions from its oil and gas and equipments divisions. For earnings exposure, we strongly advise investors to buy UMW. Any retracement in MBM’s share price can be an opportunity to accumulate the stock, although preferably after its results are released. Tan Chong’s share price may stay in an overhang for a while, until we have more visibility on what the bookings of its Nissan Almera would be. The launching of the Almera is on schedule on 30 Nov, as is the announcement of its pricing.
Outlook for 2013. Besides the upcoming NAP, we expect the automotive sector to be quiet next year. Growth would be muted given the lack of new key model launches other than facelifts. We expect TIV to grow 1% in 2013 on the back of GDP growth of 4.9%. 2014 would be the year to look out for due to the anticipated launch of the new Perodua Viva and possibly a new Proton line-up.
OVERWEIGHT. While 2013 is expected to be quiet, we see the market as being forward-looking. We maintain our OVERWEIGHT call on the auto sector with UMW (FV: RM11.87) and MBM (FV: RM4.76) as top picks. We like UMW for its market dominance via the Toyota and Perodua marques and the turnaround of its oil and gas segment. Meanwhile, we see a possible rerating for MBM as it moves up the value chain to become an integrated automotive group.
Source: OSK
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