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This article first appeared in The Edge Financial Daily on November 29, 2019

Auto and auto parts sector
Maintain neutral:
Proton Holdings Bhd stood as the champion in October as its sales volume rose by 87% year-on-year (y-o-y) to 9,500 units (+9% month-on-month [m-o-m]). Notably, Proton’s cumulative 10 months of 2019 (10M19) sales volume of 79,000 units (+46% y-o-y) already exceeded its annual sales volume over the past three years. Also, Proton solidified its grip on the second place in the Malaysian auto market with a market share of 16% in 10M19 (10M18: 10.8%; Honda’s market share in 10M19: 14.4%). Judging from strong bookings of the face-lifted Saga and popular demand for the X70, we believe Proton is poised to achieve its sales target of 100,000 units in 2019. Elsewhere, Perusahaan Otomobil Kedua Sdn Bhd’s (Perodua) sales volume was also commendable at 22,800 units (+17% y-o-y; +34% m-o-m) in October, driven by strong demand for its key models (Myvi,

Axia and Aruz). We learnt that Perodua had delivered over 10,400 units of the face-lifted Axia based on the accumulated 20,000 bookings received since the launch of the model in mid-October.

Due to stronger demand for local cars, Japanese car sales volume continued to slump in 10M19, with Toyota down 6% y-o-y, followed by Honda (-18% y-o-y), Nissan (-34% y-o-y) and Mazda (-22% y-o-y; current backlog: 1,500 units). Similarly, the premium segment also saw a lacklustre performance in 10M19, with sales volumes of BMW/MINI and Mercedes-Benz falling by 17% y-o-y and 25% y-o-y respectively in 10M19. On a monthly basis, sales volume of most key carmakers (excluding BMW/MINI) picked up as September 2019 was a shorter working month and, we believe, consumers withheld their purchases in anticipation of the announcement of Budget 2020.

We maintain our “neutral” rating on the auto and auto parts sector. Our top pick is MBM Resources Bhd for its appealing valuation. Key risks to our sector call include: i) higher-/lower-than-expected car sales volume; ii) tighter/looser bank lending policies; iii) intensifying price competition; iv) fluctuations in the exchange rates of the ringgit to the US dollar and the yen; v) delays in new car pricing approvals; and vi) a worse-than-expected economic slowdown that affects market sentiment. — Affin Hwang Capital, Nov 28

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