This article first appeared in The Edge Financial Daily on April 23, 2019
Automotive sector
Maintain overweight: In March 2019, passenger and commercial car sales saw strong growth, leading to a surge in total industry volume (TIV) to 54,800 units or +37.5% month-on-month (m-o-m) and +9.6% year-on-year (y-o-y). We believe the growth was mainly underpinned by longer working days and elevated sales of Perodua and Proton’s sport utility vehicle (SUV). Meanwhile, according to the Malaysia Automotive Association (MAA), there was a rush for deliveries by companies, with the financial year ended March 31.
MAA expects sales volume for April to be as strong as March 2019’s, due to auto companies’ aggressive marketing campaigns. Year to date (YTD), TIV in the first quarter of 2019 (1Q19) of 143,100 units (+5.9%) accounted for 24% of our and MAA’s full-year forecasts — within expectations.
The passenger car segment saw strong growth with sales of 50,100 units (+36.3% m-o-m; 12.6% y-o-y). Meanwhile, after two consecutive months of decrease, commercial car sales picked up again with sales of 4,700 units in March 2019. Perodua and Honda saw strong sales in March 2019 with additional 6,000 and 2,700 units compared with those in February 2019. YTD, 1Q19 total passenger vehicles grew 8.3% y-o-y largely supported by higher sales from Perodua, Proton and Toyota.
Perodua saw 35% m-o-m and 12.3% y-o-y growth in March 2019 due to overwhelming response for its newly launched SUV — the Aruz — and a new Myvi. In 1Q19, Perodua sold 60,700 units (+2.7% quarter-on-quarter; +9.2% y-o-y) and is progressing well to achieve its 2019 target of 231,000 units. We understand it had more than 14,000 bookings for the Aruz as of mid-March. As such, we believe Perodua’s related companies such as MBM Resources Bhd and UMW Holdings Bhd would benefit from Perodua’s strong sales.
UMW saw a sale of 13,900 units in 1Q19, up 8.1% compared with that last year, and expected to boost the group’s 1Q19 financial results for its automotive segment. For Mazda, it sold 3,300 units in 1Q19 (-3.7% y-o-y). We understand Bermaz Auto Bhd sold approximately 14,800 units of Mazda vehicles for the first 11 months of financial year 2019 (FY19) compared with 11,000 units last year. Therefore, we believe the group would be able to achieve our sales target of 16,000 units for FY19.
We maintained our “overweight” stance on the sector with an unchanged 2019 TIV forecast of 607,000 units (+2.1%). We believe growth will be driven by improving consumer sentiments and an uplift in demand for new SUVs in the market. We maintained our “buy” rating on Bermaz with a target price (TP) of RM2.93 and Sime Darby Bhd (TP: RM2.78). UMW, Pecca Group Bhd and MBM’s recommendations are currently under review. — TA Securities Research, April 22