The year 2012. Total industry volume (TIV) in 2012 has so far turned out to be better than expected despite being hit by tighter lending guidelines, which hurt the sales of national entry-level vehicles such as Proton Saga and Perodua’s Viva. There were still supply constraints following the Thai floods late last year, which led to Honda’s six-month plant shutdown and hindered assemblers from procuring parts. Furthermore, speculation of a potential cut in excise duties in Budget 2013 also led to sales (notably, of the national marques) hitting the brakes. Those expectations did not come to pass as we had anticipated, as any announcement relating to the auto sector would be made separately in the upcoming National Automotive Policy (NAP). Despite these concerns weighing on TIV growth, the aggressive launches by the non-national marques, especially by Toyota and Volkswagen, and strong consumer sentiment as well as aggressive promotions, are likely to propel TIV to end the full year with 2.5% growth. This is in line with our revised forecast (our earlier forecast was for 1% growth) and that of the Malaysian Automotive Association.
What to expect from the NAP. We do not expect significant market liberalisation from the upcoming 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 been stressing 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. In our view, a significant shift to a more positive landscape in the industry would be the End of Life Vehicle Policy, which has yet to be implemented on passenger cars. However, we think such a policy is unlikely to be announced in the near term due to the critical sensitivity of the issue.
TIV outlook for 2013. Besides the upcoming NAP, we expect the automotive sector to be quiet next year given the lack of new model launches. We think that growth will still be driven by the foreign marques – Nissan’s Almera should still see encouraging sales, the all-new Toyota Vios and Altis models are scheduled for launch in 2H13 while Volkswagen may potentially roll out more locally-assembled line-ups next year. These developments could spur competition in the B and C segments. On the national carmakers’ side, Proton could be releasing a hatchback version of the Preve while Perodua could see new facelifts on the Alza and the Myvi. 2014 would be a significant year for TIV growth, which will be marked by the potential launches of two new entry-level vehicles in the A segment from Perodua and Proton. The former could be a replacement for the Viva, while the latter could be involved in some joint development with Honda, although it would not be entirely surprising if Proton delays this launch again. We expect TIV to grow by 1% in 2013 (to 621k vehicles) given that the market is at saturation, as Malaysia has one of the highest vehicle ownerships in the world.
Downgrade to NEUTRAL. We believe investors would still take a macro view on the overall outlook given that 2013 is not expected to be an exciting year despite the impending announcement of the NAP. Hence we are downgrading our sector view to NEUTRAL, with UMW (FV: RM13.36) and Tan Chong (FV: RM5.32) as our top picks. The former is a heavyweight favourite among investors for its oil and gas turnaround while the latter is a laggard performer that may see its Nissan Almera set its earnings on fire.
What to expect from the NAP. We do not expect significant market liberalisation from the upcoming 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 been stressing 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. In our view, a significant shift to a more positive landscape in the industry would be the End of Life Vehicle Policy, which has yet to be implemented on passenger cars. However, we think such a policy is unlikely to be announced in the near term due to the critical sensitivity of the issue.
TIV outlook for 2013. Besides the upcoming NAP, we expect the automotive sector to be quiet next year given the lack of new model launches. We think that growth will still be driven by the foreign marques – Nissan’s Almera should still see encouraging sales, the all-new Toyota Vios and Altis models are scheduled for launch in 2H13 while Volkswagen may potentially roll out more locally-assembled line-ups next year. These developments could spur competition in the B and C segments. On the national carmakers’ side, Proton could be releasing a hatchback version of the Preve while Perodua could see new facelifts on the Alza and the Myvi. 2014 would be a significant year for TIV growth, which will be marked by the potential launches of two new entry-level vehicles in the A segment from Perodua and Proton. The former could be a replacement for the Viva, while the latter could be involved in some joint development with Honda, although it would not be entirely surprising if Proton delays this launch again. We expect TIV to grow by 1% in 2013 (to 621k vehicles) given that the market is at saturation, as Malaysia has one of the highest vehicle ownerships in the world.
Downgrade to NEUTRAL. We believe investors would still take a macro view on the overall outlook given that 2013 is not expected to be an exciting year despite the impending announcement of the NAP. Hence we are downgrading our sector view to NEUTRAL, with UMW (FV: RM13.36) and Tan Chong (FV: RM5.32) as our top picks. The former is a heavyweight favourite among investors for its oil and gas turnaround while the latter is a laggard performer that may see its Nissan Almera set its earnings on fire.
Source: OSK
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