This article first appeared in The Edge Financial Daily on December 20, 2018

Auto and autoparts sector
Maintain overweight: Perodua sold 21,100 vehicles in November 2018 (+8.1% month-on-month [m-o-m], +26.9% year-on-year [y-o-y]); with cumulative eleven months of financial year 2018 (11MFY18) sales of 208,800 units (+13.1% y-o-y).

As such, Perodua can certainly exceed its 2018 sales target of 209,000 units.

Perodua remains as the market leader with an 11MFY18-market share of 37.9% (cumulative eleven months of financial year 2017 [11MFY17] at 35.4%).

On the other hand, Proton’s November 2018 sales volume was flat y-o-y (+0.2%), but contracted by 5.4% m-o-m to 4,800 units, limited by a supply constraint occurred in November 2018.

With over 10,000 bookings for the all-new Proton X70 launched on Dec 12, 2018, coupled by the zero sales and services tax pricing policy and year-end promotions, we think Proton sales volume will likely improve in the coming months.

The non-national carmakers dominate the Malaysian auto arena for the sixth month — 11MFY18-market share at 51.3%.

Mazda continued to shine for the fifth consecutive month — achieving another strong monthly sale of 1,900 units in November (only 59 units lesser from the tax holiday high in August).

We believe Mazda’s sales momentum will remain healthy, considering the order backlog of approximately 3,000 units.

Elsewhere, Toyota sales in November 18 was down to 3,900 units (-18.7% m-o-m, -43.3% y-o-y) as we believe consumers are looking forward to the all-new Camry and all-new Vios, to be launched between the fourth quarter of financial year 2018 to 2019 (4QFY18-1QFY19).

Meanwhile, the European carmaker’s 11MFY18 sales volume grew by 12.6% y-o-y to 24,400 units, led by higher sales volume from Mercedes-Benz (+10.2% y-o-y) and BMW (+15.1% y-o-y) respectively.

We maintain “overweight” call on the sector, expecting sector earnings to remain healthy amid top-line growth and sustained strength of the ringgit.

For sector picks, we prefer Toyota, Mazda and Perodua.

Downside risks could come from: i) a prolonged tightening of auto financing hindering the borrowing ability of car buyers; ii) exchange rate risk; and iii) a slowdown in the economy. — Affin Hwang Capital, Dec 19