This article first appeared in The Edge Financial Daily, on October 28, 2015.

Automotive sector
Maintain neutral: Malaysia’s new vehicle sales registered a 7% year-on-year (y-o-y) increase to 51,106 units in September this year. But this translates into a 4.4% month-on-month (m-o-m) decline from August.

Cumulatively, nine-month (9M15) new vehicle sales volume still lags the 9M14 figure by 1.4% at 485,388 units, making up 72.5% of our full-year forecast. We consider this to be broadly in line as we expect a cyclically stronger fourth quarter (4Q15). The weaker m-o-m performance was not a surprise as there was no real catalyst to boost sales volume during the month.

Sales of local brands dropped 9.5% m-o-m, but rose 15% y-o-y to 23,202 units in September. Their sales continued on a downhill trend after hitting a high in July due to the Raya promotions, but have since lacked strong catalysts to boost sales volume. Meanwhile, the stronger y-o-y performance was mainly due to consumers holding back their purchasing decisions last year in anticipation of the launches of the Perodua Axia and Proton Iriz.

On the other hand, foreign brands managed to record positive m-o-m and y-o-y sales volume growth in September, up 0.3% m-o-m and 1.1% y-o-y to 27,904 units. Cumulatively, their 9M15 sales volume still declined 4.7% y-o-y to 249,025 units. The m-o-m performance was boosted by the strong sales of Honda, and Mazda, while the stronger y-o-y performance was led by Mazda, Honda and Perodua.

Among the mass-market brands, Mazda, Honda and Perodua were the biggest gainers in 9M15. Mazda’s sales grew 18.4% y-o-y, Honda’s jumped 17.0% y-o-y, and Perodua’s gained 12.3% y-o-y. Mercedes-Benz has been the best performer among the luxury brands, with sales rising 67.6% y-o-y in 9M15. These brands have benefited from the successes of their new models launched in late 2014 and early 2015.

The fourth quarter is historically the strongest season of the year, with carmakers undertaking aggressive promotions to boost sales in order to meet sales targets and clear inventories. We expect this trend to be repeated in 4Q15. With the weak overall sales growth, we expect automakers to aggressively push their existing inventories, while we expect potential car buyers to take this opportunity to purchase before the increase in car prices by some automakers comes into effect in January next year. — CIMB Research, Oct 27