This article first appeared in The Edge Financial Daily on April 5, 2019

Automotive sector
Maintain neutral: As of February 2019 (2M19), national marques, which captured a 56% market share, had overtaken non-national marques (44%), the first since 2013. The better market share was attributed to outstanding sales from Perodua, particularly after the introduction of its all-new Myvi (150,000 bookings with 110,000 units delivered) and boosted by a surge in Proton sales following the launch of its all-new X70 (20,000 bookings, 9,800 units delivered) and supported by fresh new face-lifted, improved technological variants of existing line-ups.

Notable changes include Honda’s recent announcement of its 2019 target of 95,000 units, which is lower than 2018 (102,282 units) due to challenging market condition. Its 2018 market share was 17.1% premised on locally assembled models — City (32%), Civic (16%) and CR-V (13%). Nevertheless, Honda’s reported 2M19 sales showed that the marque lost market share to 15%, and coupled with the lower targeted number of 95,000 units, we believe its market share will maintain at about 16% for the full year. We believe consumers are changing their preferences to national carmakers which offer cheaper variants. In comparison, given this year’s focus on sports utility vehicles (SUVs), Honda CR-V (priced at RM137,000-163,000) has a higher price tag compared to the Proton X70 (RM98,000-124,000), whereas for the lower segment, Honda BR-V (RM80,000-90,000) is also priced higher that the all-new Perodua ARUZ (RM73,000-78,000).

We increase our 2019 total industry volume (TIV) target to 600,000 units from 590,000 units matching the Malaysian Automotive Association’s (MAA) target of 600,000 units, factoring in the extra boost from the national carmakers’ numbers. Proton X70 sales were exceptional since the launch of its completely-built-up (CBU) models on Dec 12, 2018, and more will be delivered when completely-knocked-down (CKD) models roll out in the second half of 2019 (2H19). Proton is optimistic about its upcoming smaller SUV segment based on Geely Binyue and supported by face-lifted variants of its existing models.

On the other hand, Perodua has targeted higher 2019 sales at 231,000 units (+1.7%), largely premised on its all-new Myvi and boosted by the all-new ARUZ (14,000 bookings, about 4,000 units delivered). We also revised our sum-of-parts target price for DRB-Hicom Bhd to RM1.90 from RM1.80 to factor in the positive boost in Proton’s sales volume.

We believe the absence of a one-off 2018 tax holiday will be offset by exciting new launches in 2019. Note that we have factored in a possible delay in the timing of new launches given the backlog of pricing approvals by the authorities (three to four months, which is better than the previous four to seven months), the absence of sales-boosting tax holiday, and tepid purchasing power. The ministry of international trade and industry (Miti) had decided to increase the frequency of the monthly meetings held by the Automotive Business Development Committee (ABDC), which it chaired, from once to twice a month to speed up the vehicles’ pricing approval process. Subsequently, the latest Bank Negara Malaysia data showed that the loan approval rate for passenger cars was still above 55% (five-year loan approval rate mean) credit to delivery of back-logged order for vehicles booked before the re-implementation of the sales and services tax.

Only two stocks — MBM Resources Bhd and Bermaz Auto Bhd — of the six under our coverage performed above expectation, while the other four — DRB-Hicom, Sime Darby Bhd, Tan Chong Motor Holdings Bhd and UMW Holdings Bhd — were within expectations. Overall, we saw a weaker performance in the fourth quarter of calendar year 2018 (4Q18), except for Perodua-linked companies, as expected, due to the higher base in the 3Q18 which was boosted by the tail-end of the zero-rated tax holiday. Nevertheless, Perodua-linked companies — UMW and MBM Resources — recorded stronger performances, mainly from higher contributions from associates with the recovery in supply disruption for the new Myvi in August and September 2018, which had been rectified in October 2018.

Overall, car sales volumes for 1Q19 and 2Q19 are expected to be stronger than 4Q18 buoyed by the pent-up demand for new model launches, unusually slower year-end sales in 4Q18 and Chinese New Year and Hari Raya promotional sales, respectively. Recent new launches include Proton X70, Perodua ARUZ, face-lifted Honda HR-V (includes hybrid), face-lifted Proton IRIZ and Persona, Toyota Vios and Toyota Rush (first batch delivery due to approval issues). Upcoming launches include the all-new Toyota Yaris (2Q19), all-new A90 Toyota GR Supra (2H19), T32 Nissan X-Trail facelift (April 2019), Mazda CX-8 (CKD, 2H19), Mazda CX-30 (CBU, 2H19), Proton/Geely Binyue (tentative), all-new Perodua Alza (tentative), and face-lifted Proton Exora (tentative).

For segmental targeted sales, 2019 will be the year of the SUV segment led by the introduction of Proton X70 (launched on Dec 12, 2018), Perodua ARUZ (launched on Jan 15, 2019), all-new Toyota C-HR (1Q18), Toyota Rush (end-February 2019), all-new Mazda CX-5, all-new Mazda CX-8 CKD (2H19), and all-new Mazda CX-30 CBU (2H19). Note that the market share of four-wheel drive (WD)/SUV segment had increased from 12.2% in 2017 to 13.5% in 2018 due to the increasing popularity of these vehicles. This will be supported by the value-for-money segment which will be focusing on the affordable variants led by Perodua (Axia, Myvi, Bezza, and Alza), followed by Honda (with its entry-level hybrid segment, Jazz and City Sport hybrid, as well as entry-level SUV segment, the BR-V). Sliding down the list, Proton edged closer to Honda’s market share with its X70 and supported by the Saga, Persona and Exora, whereas Toyota boosted its recent line-ups with the introduction of the Vios and supported by Hilux and Innova.

Perodua continued to lead the pack with a market share of 42% (2M18: 41%) and higher sales growth (+7% year-on-year [y-o-y]) driven by higher deliveries of its new Myvi and ARUZ. In second spot is Honda which registered a lower market share of 15% (2M18: 18%) and a lower sales growth (-11% y-o-y) as consumers held back purchases expecting new models in 2H19 despite better response for its best-selling models such as City, BR-V, Civic and all-new Honda HR-V facelift (launched on Jan 16, 2019).

On the other hand, Proton (+41% y-o-y) registered higher market share of 14% (2M18: 10%) due to higher delivery of the X70. Toyota posted stronger sales (+4% y-o-y) and unchanged market share of 9% (2M18: 9%), while market share of Nissan (-6% y-o-y) shifted lower to 3% (2M18: 4%). — Kenanga Research, April 4