Auto Sector - Daihatsu recalls MyVi/Sirion OVERWEIGHT

- News reports this morning highlighted that Perusahaan Otomobil Kedua (Perodua) will recall 74,000 of the new variant MyVi (produced between March 2011 and March 2012 only) to fix issues related to the model’s electronic power steering (EPS). It is said that at slow speeds, the driver can sometimes feel a slight heaviness on the steering wheel when turning. 

- Our checks suggest that this is a region-wide recall by Daihatsu, which includes Indonesia, one of Daihatsu’s largest export markets. The MyVi is sold in Indonesia under the brand Daihatsu Sirion.

- Our checks also suggest that the core of the problem is not the entire power steering system (which can cost up to RM500-800 per system) but rather, a connector which is found on the steering column that connects to other electronic parts in the car, e.g. electronic control unit, torque sensor (See Chart 1 and 2). 

- It is important to note that the recall is merely a preventive measure and so far, there has been no complaint from consumers. Moreover, the issue does not involve the safety of the model, but rather, the comfort in using the car. 

- In this regard, we believe the proactive preventive measure undertaken by Perodua will serve to protect its reputation in the market as a reliable brand and a responsible car manufacturer rather than the opposite.

- We do not rule out the possibility of Perodua/Daihatsu seeking compensation from part suppliers if it is a manufacturing or design fault at the vendor’s end. 

- In the worst-case scenario where Perodua bears the cost of the recall (note that Perodua Manufacturing is 51%-owned by Perodua Auto Corp, which in turn is 51%-owned by Daihatsu Motor Corp and Mitsui), the cost is estimated to be pretty small – c. RM2mil-3mil in total on our estimates – assuming only the connector located on the EPS is replaced.

- UMW owns 38% of Perodua, while MBM owns a direct 20% stake. Assuming the cost flows all the way up to Perodua, the impact on UMW and Perodua’s FY13F earnings is negligible, i.e. 0.08% (for UMW) and  0.2% (MBM).

- We maintain our BUY calls on UMW and MBM with unchanged FVs of RM13.20/share and RM5.20/share respectively. The significantly weaker Yen (18% off peak levels seen through 1H12) should contribute to significant earnings improvement from 1Q13 onwards. Every 1% depreciation of the Yen impacts Perodua’s bottom line by 1.4%.

Source: AmeSecurities