KUALA LUMPUR: CIMB Equities Research is maintaining its Underweight call on the automobile sector due to persistent weakness in consumer sentiment and potential margin erosion from higher operating expenditure (opex) and intense competition.
It said on Friday the sector trades at 1.2 times CY18F price-to-book value (P/BV), in line with its three-year mean.
“However, disappointing earnings this year could de-rate the sector. Key upside risks are the further strengthening of the ringgit versus the US$ and yen, and better-than-expected total industry vehicles (TIV) growth,” it said.
CIMB Research pointed out new vehicle sales rose 23% on-month in March 2018 due to the longer working month.
As for the first quarter, TIV fell 4% on-year due to lower passenger vehicle sales across both foreign and national brands.
Meanwhile, production volume rose 13% on-year, mainly driven by Perodua.
Perodua grew its market share by 5.4 percentage points to 41.1% in 1Q18, mainly driven by the new Myvi model.
Proton's market share continued to slide due to lack of new model launches.
Honda retained its dominance among foreign brands, with 17.9% market share, down 1.5% pts on-year.
Nevertheless, Mazda successfully grew its market share by 1.1% pts to 2.5% in 1Q18, largely driven by its popular CX-5 model launched in 4Q17
“We still project tepid 2% TIV growth in 2018F, driven by the stronger growth in SUV demand on the back of multiple new model launches in 2H18F.
“Maintain Underweight due to margin erosion from rising competition and downside risk from disappointing earnings delivery. DRB-Hicom remains our top pick for auto sector,” it said.
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