Auto Sector - Seasonally weak February OVERWEIGHT

- Seasonal weakness: February TIV was seasonally weaker MoM due to a shorter working month, compounded by CNY holidays. February TIV registered at 44,976 units (-18% MoM). On a YoY basis, Honda was the strongest performer in February – unit sales rose by almost 9-fold to 3,039 units, off a weak base last year. Honda was the most affected by the Thai floods that triggered a supply shortage during the 4Q11-1Q12 period.

- Annualised YTD TIV of 600,252 units is short of both our estimate and MAA’s projection of 637K (+1.5% YoY) and 640K (+2% YoY), respectively. However, the first two months’ sales are not exactly reflective of full-year performance given February’s exceptionally short working month (effectively 17 working days). We leave our projections unchanged at this juncture. March numbers could rebound strongly from spillover deliveries.

- Nissan’s annualised TIV slightly ahead of forecast: Nissan (+52% YoY) was the 2nd best performer after Honda, driven by strong sales of the Almera. We estimate circa 2.8-2.9K (vs. 3.5K in January 2013) of the Almera were invoiced in February. Annualised Nissan YTD TIV of 56,400 is slightly ahead of our FY13 forecast of 55K (despite a seasonally weak February), but we conservatively leave our projections unchanged for the time being. Management is targeting Nissan TIV of 60K-65K this year. Nissan continues to maintain its position as the second largest non-national after overtaking Honda in November 2012.

- Perodua sales were down 3% YoY, but still higher by 6% on a YTD basis. The recently launched S-series (for MyVi, Alza and Viva models with restyled exterior and enhance interior) will create fresh demand going forward. We expect c.1.6% volume increase for Perodua this year, slightly more conservative than management’s target of 194K. . From an earnings perspective, Perodua FY13F earnings should benefit from vendor price adjustments and a weaker JPY. Circa 15%-20% of Perodua’s kits are imported and denominated in JPY – an every 1% change in MYR:JPY impacts bottom line by 1.2%.

- Toyota was the worst performer among the Big 5 players (-34% YoY) due to a high base in FY12, which was driven by aggressive launches of new models. Toyota sales volume YTD, if annualised, seems to be a lot weaker than expected, accounting for 66% of our FY13F forecast, but 2H13 sales should pick up strongly when the new generation Vios is launched. We leave our projections unchanged for the time being. Another key catalyst for UMW (Under Review, FV: RM13.20/share) this year is the listing of its O&G division which will crystallise the value of its stake in the business.

- Price competition in the near term poses margin risks, but a more favourable forex trend could offset this impact, on top of deeper localisation initiatives and parts vendor price adjustments.

- TCM (BUY, FV: RM6.40/share) remains our top sector pick as its earnings are most sensitive to changes in forex, while a structural expansion in market share should drive record earnings this year (FY13F earnings: +103% YoY). Nissan volume trend is likely to outperform peers this year with the lack of mass volume model launches by competitors with the exception of the Vios in 2H.

Source: AmeSecurities