October TIV came in strong at 55,358 units, higher by 3.3% y-o-y, 20.7% m-o-m and 2% YTD. The auto industry is on track to hit our TIV growth target of 2.5% for 2012. Perodua and Toyota reported disappointing numbers for the month – the former due to tighter lending guidelines hitting Viva sales while the latter took a hit following the introduction of Nissan’s Almera. We advocate investors to start buying Tan Chong (FV: RM5.63), which is also our top pick in the auto sector, following encouraging bookings for its all new B-segment Nissan Almera.
TIV on target. Total industry volume (TIV) for the month of October came in strong at 55,358 units, higher by 3.3% y-o-y, 20.7% m-o-m and 2% YTD. The numbers so far remain on track to hit our TIV growth target of 2.5% for 2012. We continue to maintain our TIV growth projection for 2.5% and 1% for 2012 and 2013 respectively.
How the top 5 marques fared. Perodua continues to lead in market share. However, its October vehicle sales dropped sharply by 14.4%, largely due to tighter lending activities hitting Viva sales. Toyota sales took a hit as well, with sales dropping marginally by 0.2% y-o-y. We believe sales of its Vios may have dropped as potential buyers were putting their buying decision on hold until the price of Nissan Almera was unveiled on 30 Oct. Both Honda and Nissan staged an impressive growth, with their vehicle sales surging by 46% and 25.2% y-o-y respectively. Honda’s impressive growth was due to backlog deliveries as production was halted throughout most of 1H12 following the Thai flood last year while Nissan saw recovery in its production also hit by the Thai flood coupled with deliveries of the recently launched Almera. As of to date, bookings of the Almera is at an impressive 7,000, barely two weeks after its official launch. Proton also saw its vehicle sales bouncing back due to improved sales of its new Preve.
Earnings outlook and strategy. Proton’s disappointing sales in 3Q are likely to result in a hit on DRB Hicom’s earnings and also drag down component makers. This does not bode well for MBM given that it relies on Proton for its airbag sales, through subsidiary Hirotako, though we expect this impact to be cushioned by higher airbag production, thanks to the implementation of the mandatory dual airbag policy effective 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. Tan Chong’s share price may move higher following its encouraging vehicles sales last month and better-than-expected demand of its all-new Nissan Almera.
TIV on target. Total industry volume (TIV) for the month of October came in strong at 55,358 units, higher by 3.3% y-o-y, 20.7% m-o-m and 2% YTD. The numbers so far remain on track to hit our TIV growth target of 2.5% for 2012. We continue to maintain our TIV growth projection for 2.5% and 1% for 2012 and 2013 respectively.
How the top 5 marques fared. Perodua continues to lead in market share. However, its October vehicle sales dropped sharply by 14.4%, largely due to tighter lending activities hitting Viva sales. Toyota sales took a hit as well, with sales dropping marginally by 0.2% y-o-y. We believe sales of its Vios may have dropped as potential buyers were putting their buying decision on hold until the price of Nissan Almera was unveiled on 30 Oct. Both Honda and Nissan staged an impressive growth, with their vehicle sales surging by 46% and 25.2% y-o-y respectively. Honda’s impressive growth was due to backlog deliveries as production was halted throughout most of 1H12 following the Thai flood last year while Nissan saw recovery in its production also hit by the Thai flood coupled with deliveries of the recently launched Almera. As of to date, bookings of the Almera is at an impressive 7,000, barely two weeks after its official launch. Proton also saw its vehicle sales bouncing back due to improved sales of its new Preve.
Earnings outlook and strategy. Proton’s disappointing sales in 3Q are likely to result in a hit on DRB Hicom’s earnings and also drag down component makers. This does not bode well for MBM given that it relies on Proton for its airbag sales, through subsidiary Hirotako, though we expect this impact to be cushioned by higher airbag production, thanks to the implementation of the mandatory dual airbag policy effective 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. Tan Chong’s share price may move higher following its encouraging vehicles sales last month and better-than-expected demand of its all-new Nissan Almera.
Outlook for 2013. Other than the upcoming national automotive policy (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 Tan Chong (FV: RM5.63) and UMW (FV: RM11.87) as top two picks. We like Tan Chong as a laggard play on the back of improving vehicle sales numbers following the launch of the Nissan Almera. We continue to like UMW for its market dominance via the Toyota and Perodua marques and the turnaround of its oil and gas segment. We have also upgraded Delloyd Ventures to a BUY as its share price retracement gives an upside of 18%.
Source: OSK
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