Automotive sector
Maintain “neutral”: According to the latest data from the Malaysian Automotive Association, total industry volume (TIV) in January declined 22% month-on-month (m-o-m). While the weaker January TIV is a norm due to the high base effect in December 2014 (where aggressive bookings were seen amid the heavy discounts given by auto companies), the slowing trend in TIV sales is apparent, with a mere 1% growth year-on-year (y-o-y) even from a low base of weak January 2014 TIV sales. 

Hence, we do not discount the possibility of a “wait-and-see” approach among consumers in anticipation of lower car prices post-goods and services tax (GST). On the upcoming announcement of automotive companies’ fourth quarter of 2014 (4Q14) results, we see earnings risks (especially for Tan Chong Motors Holdings Bhd), where earnings could potentially be dragged down by thinner margins on aggressive advertising and promotion (A&P) activities as well as the adverse currency fluctuations. We leave our earnings forecasts unchanged for all the auto companies, pending the announcement of the results by the end of this month. 

We prefer to stick with auto players which are less vulnerable to the weakening ringgit. Our top pick remain Berjaya Auto Bhd for investment merits backed by its superior growth prospects from low base on the back of its strong pipeline of exciting models, margin expansion on the back of favourable exchange rate (with huge exposure in yen) as well as lower import duties, and potential dividend payout of 40% which could translate into a decent 3.8% dividend yield.

Perodua, the outperformer of the month, registered a robust TIV growth of 33% y-o-y on the back of strong sales of its new flagship vehicle, Perodua Axia. On the other hand, Proton sales remained pedestrian (-9%) despite the  launching of Proton Iriz. 

On the non-national marques segment, Honda and Nissan sales improved by 2% and 6%, respectively, on the back of heavy promotional activities for its flagship B-segment cars. Toyota, on the other hand, lagged, with its sales volume dropping by 43% y-o-y, sending its market share down to 6.1% (-4.6 percentage points). 

For 2015, although we see headwinds ahead amid the lower disposable income as a result of the GST and rising living cost, we are still expecting TIV to stay flat at 667,000 units.  — MIDF Research, Feb 23

This article first appeared in The Edge Financial Daily, on February 24, 2015.