Overhang in auto sales in 1Q16

Record sales: Hyundai Motor Co vehicles sit on display for sale on the lot of the Keyes Hyundai dealership in the Van Nuys neighborhood of Los Angeles, California. For full year 2015, US sales hit a record of 17.47 million vehicles, breaking the mark of 17.41 million vehicles in 2000, according to Autodata Corp.

KUALA LUMPUR: Following strong growth in 4Q15, Maybank IB Research expects to see an overhang in sales in 1Q16 due to weak consumer sentiment and tighter HP financing guidelines.

“Higher cost of living coupled with the moderation in economic growth are factors that will continue to weigh on consumer sentiment especially for purchases of big ticket items (i.e. property and cars). As such, we expect 2016 TIV to contract by 3% year-on-year to 645,000 units,” it said on Friday.

Stiffer competition among auto players will continue to drive sales while sustained weakness in the ringgit will be detrimental to auto margins and profitability, it added.

December 2015 TIV jumped 24% month-on-month to 69,400 as consumers front-loaded car purchases before the price hikes in January 2016. This took 2015 TIV to a record high of 667,000, higher than Maybank’s 2015 TIV estimate of 655,000.

The growth in December 2015 TIV was seen across the board, except for Mercedes Benz, and was led by Perodua and Toyota in terms of absolute volume. Notably, Honda dethroned Toyota for the first time, as the bestselling non-national marque.

Despite the 9%-28% contraction of share prices in 2015 for the auto stocks within Maybank’s coverage, current sector valuation remains uninspiring at 14x CY16 PER (market weighted). It also sees downside bias to earnings from higher imported component cost, should the ringgit weaken further against the USD and JPY.

BAuto is its only BUY in the auto sector for its exclusive Mazda distributorship in Malaysia and the Philippines which are gaining traction. Its new, attractive launches coupled with competitive pricing will drive forward sales growth.

Maybank sees further earnings downside to UMWH from its O&G division as the slump in oil prices affects exploration activities of its jack-up rigs and negative exposure in USD for Toyota’s imported component costs.