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This article first appeared in The Edge Financial Daily, on April 21, 2016.

 

Automotive sector
Maintain neutral call:
Total industry volume (TIV) for March was at 48,800 units, an increase of 28.8% compared with February. Both passenger vehicles and commercial vehicles registered growth of 26.7% month-on-month (m-o-m) and 48.1% m-o-m respectively due to surges in demand for non-national makes with an increase of promotional activities. 

Automotive-sector_chart_210416

TIV was, however, down by 27.6% year-on-year and 22% year to date (YTD) due to customers purchasing ahead of the implementation of the goods and services tax, thus, prompting higher TIV for last year; and price hike by major car brands, which started in January this year except for Mazda, BMW and MINI. 

The YTD volume of 131,267 units was within our and Malaysian Automotive Association’s expectations, making up 20.3% of full-year forecast of 650,000 units. 

The national car segment showed higher sales by 16% m-o-m. The higher m-o-m growth was due to the surge in sales of 25.8% m-o-m to 17,629 units by Perusahaan Otomobil Kedua Sdn Bhd (Perodua) with an increased demand from Perodua Axia and a RM3,000 cash rebate on Perodua Myvi. 

These helped Perodua maintain its lead in the auto industry with a market share of 36% while Proton Holdings Bhd was well behind at 11%. Proton sales declined by 6.9% m-o-m to 5,535 units due to higher prices implemented after the Chinese New Year period. 

The non-national segment surged 43.1% m-o-m due to the higher sales of Japanese marques across the board. 

Mazda showed the highest growth of 81.1%, which was contributed by strong sales of its new Mazda CX-3. Toyota regained market share slightly to 9% from 8% in February, which put it on par with Nissan. 

Honda still holds the top spot with a market share of 15% despite having the lowest growth of 32.1% m-o-m among its peers. 

The automotive industry is expected to be more positive with strengthening of the ringgit prompting a reduction in the cost of completely knock-down and completely built-up, new lines of vehicles expected for 2016, and the rising of the new D-segment or executive car category (Proton Perdana, Mazda 6, Ford Mondeo, Honda Accord, Hyundai Sonata Executive, Kia Optima, Nissan Teana, Peugeot 508 GT, Toyota Camry Hybrid, and Volkswagen Passat). 

We remain “neutral” on the sector and expect the second half to improve with year-end promotions and easing of price hike overhang. 

Accumulate on weakness with “buy” calls for Berjaya Auto Bhd (target price [TP]: RM2.89), and MBM Resources Bhd (TP: RM2.94), whereas “sell” call remains on UMW Holdings Bhd (TP: RM5.42) due to its weak oil and gas division. Tan Chong Motor Holdings Bhd (TP: RM2.41) has been excluded from the Securities Commission Malaysia’s November 2015 syariah list. — BIMB Securities Research, April 20

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