Auto sales in low gear

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Automotive sector
Maintain “neutral”:
Auto sales were relatively lacklustre in November, up just 2% month-on-month (m-o-m) while cumulative year-to-date (YTD) sales were flat at 1.1% year-on-year (y-o-y).

We believe the slower sales were due to a combination of weaker consumer sentiment and buyers holding back purchases in anticipation of year-end bargains, impending new model launches and the good and services tax (GST) implementation in April next year.

We reiterate our “neutral” call on the sector. Our top pick is Berjaya Auto Bhd. Auto sales in November reached 55,293 units, up 5.8% y-o-y, while in the first 11 months of 2014 total industry volume (TIV) sales remained flat at 1.1% y-o-y.

We expected tepid m-o-m sales, with seasonal factors coming into play such as vehicle shoppers preferring to register their vehicles in a new year. Consumers are also putting off their purchases until the impact of GST on vehicle prices becomes more apparent.

Perodua Axia has boosted sales. Perodua sales rose 4.8% m-o-m while Proton sales slowed to 0.9% m-o-m. Higher Perodua sales were expected as the carmaker ramped up deliveries of the new Axia model. Production of the new Proton Iriz has been slow in a deliberate effort to avoid the quality control issues it experienced in the past. We expect Proton sales to climb further in the coming months as deliveries of the new Iriz gather pace, although its relatively dated model range could dampen volume growth.

Toyota, Nissan and Honda all reported steady gains of 5.4%, 2.8% and 1.5% m-o-m respectively. Mazda’s sales dropped 20.9% m-o-m but  cumulative sales surged 23.4% y-o-y. Mazda’s m-o-m decline could be due to the temporary shutdown of its production line for upgrading works. We expect an upswing in Mazda sales next year with the highly-anticipated launches of the Mazda 2 and Mazda 3 completely knocked down models in January 2015.

We expect 2014 TIV to only reach 655,000 to 660,000 units, slightly short of our earlier forecast of 675,000 units. However, we expect vehicle sales to remain resilient in 2015, underpinned by a strong product pipeline and a competitive market where automakers are prepared to offer discounts. We forecast 2015 TIV to ease to 650,000 units. We expect MBM Resources to be a beneficiary of the positive market response to the Axia, while Berjaya Auto’s Mazda marque may continue to make strong market share gains. — RHB Research, Dec 22

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This article first appeared in The Edge Financial Daily, on December 23, 2014.