Auto Sector - Mitsubishi making an entry, October TIV stages strong recovery OVERWEIGHT

- MMC making an entry?: It was reported in a local daily today that MMC (Mitsubishi Motors Corp) of Japan is planning to set up its first assembly plant in Malaysia by end-2013. Details will be announced in 1Q13. Separately, the Mitsubishi Mirage, a 1.2 litre A-segment model was launched yesterday, priced at between RM55K-63K.

- Not entirely new to Malaysia: MMC is not entirely new to the Malaysian auto industry. Back in 1983, MMC and its related companies had a collective 16% stake in Proton. Back then, Proton’s models were developed based on Mitsubishi platforms and models, for e.g. the Proton Wira was derived from the Mitsubishi Lancer platform. The technical tie-up was dismantled and MMC’s 16% stake in Proton was disposed of in 2004 due to MMC’s financial difficulties.

- Mitsubishi Motors Malaysia (MMM) is currently the exclusive distributor of Mitsubishi passenger cars in Malaysia. MMM is 52% owned by MMC, while the remaining interest is held  by EON Bhd, a 73%-owned subsidiary of DRB-Hicom (BUY, FV: RM3.80/share). Mitsubishi passenger cars are currently imported as CBUs, hence incurring very high excise duties given no localisation. 

- DRB-Hicom, via its plant in Pekan, currently assembles Mitsubishi Fuso models (commercial vehicles). The Mitsubishi Fuso brand, however, is only 15%-owned by MMC while the majority share is owned by Daimler Chrysler. 

- DRB stands a chance to be the local assembler, MBM is a wildcard: We believe Mitsubishi utilising DRB as the local assembler is a possibility. While the existing Mitsubishi Fuso line may not be entirely relevant, we note that MMC had in 2011 been in talks with Proton (now owned by DRB) for local assembly of certain passenger models and co-manufacturing of engines. Besides, DRB, another potential assembler could be MBM (as MBM too has a comprehensive vehicle manufacturing license allowing it to assemble cars below 1.8 litres). However, comparing political clout and relationship with MMC, we believe DRB would have the upper hand.

 

- MBM, via its 100%-owned Federal Auto, is a Mitsubishi passenger car dealer and should benefit from:- (1) Increased sales from the introduction of the new Mitsubishi Mirage in 4Q12; (2) Local assembly of Mitsubishi passenger car models which will drive more competitive pricing; (3) Potential supply of parts to locally-assembled Mitsubishi models via Hirotako (airbags and seat belts) and OMI (alloy and steel wheels). Mitsubishi dealership sales are estimated to contribute 13% to Federal Auto sales (which in turn is 100%owned by MBM). 

- October TIV stages strong recovery: Separately, October TIV staged a strong rebound to 55,358 units, representing a 21% growth MoM and +3% YoY. While the strong recovery can be partly attributed to pent-up demand as consumers had held back purchases in September in anticipation of a duty cut in Budget 2013, the introduction of the Almera (in early November), followed by the Toyota Altis and Vios as well as the new Perodua Viva in 2013 could see the strong sales being sustained further out. Annualised YTD TIV of 616K is slightly ahead of our estimate of 607K for 2012. Maintain OVERWEIGHT – top picks: MBM (BUY, FV: RM5.20/share) and UMW (BUY, FV: RM12.70/share).

Source: AmeSecurities