This article first appeared in The Edge Financial Daily on September 24, 2019
Auto sector
Maintain neutral: The total industry volume (TIV) grew 0.5% month-on-month (m-o-m) to 51,148 units in August due to improving demand for passenger cars, multipurpose vehicles and window vans. Passenger vehicles registered a 1.3% m-o-m volume growth, while commercial vehicle sales fell 7.3% m-o-m. The Malaysian Automotive Association (MAA) expects a flattish September TIV m-o-m due to the number of public holidays shortening the number of working days.
The TIV in the first eight months of this year (8M19) fell 6% year-on-year (y-o-y) to 398,347 units mainly due to the absence of tax holidays versus 2018. Total vehicle sales in the non-national segment slid 20% y-o-y in 8M19, but this was partially offset by stronger volume deliveries in the national segment driven by Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua). In addition, the MAA reported that the total production volume fell 0.7% y-o-y in 8M19 due to lower deliveries of commercial vehicles.
Proton and Perodua have still managed to expand their market share year to date (YTD), driven by robust demand for new model launches, especially in the sport utility vehicle segment. Perodua remains the industry leader with a 39% market share, followed by Proton at 18%, this month. Proton and Perodua are the only players in the market with positive growth YTD. We expect the national brands to maintain their growth momentum in the coming months, driven by new launches such as Axia, Saga and the completely knocked-down version of X70.
The government is planning to launch the National Automotive Policy (NAP) 2019, which is expected to incorporate latest industry trends such as next-generation vehicles, mobility-as-a-service, Industry 4.0 and artificial intelligence. The NAP 2019 is also expected to provide more details of the upcoming new national car project, which could impact the Malaysian auto sector.
The sector is trading at 14.2 times forecast calendar year 2019 price-earnings ratio, slightly below the industry’s upcycle mean of 15 times over 2010 to 2014. Key upside risks to our “neutral” call include strengthening of the ringgit versus the US dollar and the yen, a reduction in interest rates and favourable new policies. Depreciation of the ringgit, interest rate hikes and a lack of new model launches are among the key downside risks. — CGS-CIMB Research, Sept 23