KUALA LUMPUR: CIMB Equities Research is retaining its Underweight rating on the automobile sector with Bermaz as its top pick due to its attractive earnings recovery outlook.
It said on Thursday the sector trades at 1.1 times CY18F price-to-book value (P/BV), in line with its three-year mean.
“However, disappointing earnings over the next year could present downside risks. Key upside risks are the strengthening of the ringgit versus the US$ and Japanese yen and better-than-expected total industry volume (TIV) growth,” it said.
CIMB Research said TIV fell 15% on-year and 21% on-month in September 2017.
The Malaysian Automotive Association (MAA) attributed the on-month decline in September 2017 TIV to fewer working days in the month and stringent hire purchase loan approval process.
The MAA expects sales to improve in Oct, mainly due to a higher number of working days in the month.
The 3Q17 TIV fell 2% on-quarter to 141,254 units from 143,621 units in 2Q17 due to lower sales volumes of both commercial and passenger vehicles (PV), which fell 1% and 2% during the period.
Proton and Toyota sales volumes dropped 16% and 9%, respectively.
However, Honda and Perodua still bucked the trend with 4% and 5% on-quarter volume growth, respectively, in 3Q17.
In spite of weaker TIV in 3Q17, total production volume increased 7% on-quarter in 3Q17, partly due to the ramp-up of Proton’s Shah Alam plant in July 2017 following a production slowdown in May-June 2017.
“In addition, we think manufacturers are building inventories for newly-launched models,” it said.
For example, Honda’s production volume rose 12% on-quarter in 3Q17 due to strong demand for its CR-V model.
“From our channel checks, we gather that consumers may have to wait up to five months for the popular 1.5 litre turbo petrol model,” it said.
CIMB Research said the 9M17 TIV grew 2% on-year, driven by higher passenger vehicle (PV) sales from both national and foreign brands; up 3% and 2%, respectively.
Growth in PV sales was led by Honda, with 24% volume growth on the back of four new models (BR-V, City, Jazz, and CR-V), followed by Proton with 12% on-year growth.
The stronger TIV sales were also in line with higher hire purchase loan application and approval rates in 8M17, up 3% and 4% YTD, respectively.
“Although 9M17 TIV only made up 71% of our full-year TIV forecast of 597k, we keep our projection as we expect higher sales volumes in 4Q17F, especially in December, driven by seasonally stronger demand due to wider discounts as dealers try to reduce their inventories ahead of the New Year.
“Historically, 4Q sales have formed about 26%-28% of full-year TIV (2012-2016),” it said.
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