KUALA LUMPUR: OSK Investment Research is maintaining its Neutral call on the auto sector currently as it expects tougher months ahead on poor consumer sentiment, now at levels similar to that during the Asian financial crisis given the bleak economic outlook and stringent lending.
In a research note issued on April 23, it said while the share prices of motor stocks had risen, it expected that valuations would potentially rebound as the earnings season kicked in.
“We maintain Neutral on MBM Resources (Target Price: RM2.34), while Tan Chong (TP: RM1.13) has been down downgraded to Sell as its price has exceeded our fundamental value on a poor sales outlook.
“We are retaining our Sell on UMW (RM: 4.06) while Proton (TP: RM3.65) remains a Trading Buy based on a price to net tangible asset (P/NTA) of 0.40 times,” it said.
On the recent March auto data sales, OSK Research said the total industry volume (TIV) sales rose 20.53% on-month due to longer working days, new model launches (Honda City) as well as heavy promotions due to lower hire purchase financing rates.
OSK Research said March numbers had historically been higher on a month-on-month basis, recording double digit gains as consumers were flushed with cash from their bonuses, normally paid within the first quarter to employees.
It said the March TIV numbers remained weak, falling 4.8% on-year and down 9.2% year-to-date. On an annualised basis, TIV numbers were 1.4% above its forecast of 467,797 units, and for which we expect weaker months ahead.
“For now, we continue to retain our TIV forecast numbers unchanged for CY09 at a 14.6% contraction over the previous year. Going forward into 2010, we do not expect a sharp recovery to levels that were achieved in 2008, as we forecast a slower 6.5% increase to 498,000 given the lack of new models visibility,” it said.
On the commercial vehicles, the segment outpaced the passenger segment on a on-month basis and also recorded positive growth on a on-year and year-to-date (YTD) basis, heavily boosted by the higher sales of pick-ups and trucks from Toyota and Nissan.
The commercial vehicle segment grew 24% on-month (on-year: 8.4% and YTD: 5.4%) while the passenger vehicle segment grew at a slower pace of 20.16% on-month (on-year: -6.0%, YTD: -10.53%). Within the passenger vehicle segment, sales of SUVs and MPVs were relatively much weaker than last year’s, down sharply by 27% and 21% on-year.
OSK Research said this was due to buyers holding back their decision to purchase pending the launch of Proton’s Exora. Passenger cars recorded decent numbers, rising 19% on-month while on-year numbers were down by 3.3%.
The on-month growth numbers for most marques showed positive growth, with Toyota and Honda showing strong gains of 33% and 34% m-o-m respectively.
Toyota’s strong volume was attributed to the heavy promotion activities of the Gran Prix Mania campaign, which was offering interest rates at as low as 1.68% for a 5-year loan for the Vios while Honda’s sales were driven by the new City, of which 5818 units have been sold YTD, while some 6051 units of Vios were sold.
Sales of Nissan, Proton and Perodua increased, albeit a slower pace, on an on-month basis at 2%, 9% and 17% respectively.
On the recent increase on HP financing rates on non-national cars by an average of one percentage point, OSK Research said this would unlikely to cause a structural shift of buyers’ preference from purchasing non-nationals to national cars given the higher income levels of these buyers.
“ Taking the top selling non-national car model such as the Vios as an example (10% down payment on-the-road price of RM73,525 and interest rate of 3.25% for five years), translates into an increase in a monthly instalment of RM56,” it explained.