CIMB Research cautious on auto sector but DRB-Hicom top pick

  • Analyst Reports
  • Wednesday, 21 Dec 2016

Proton has maintained its no.3 position, after it overtook Toyota in October

KUALA LUMPUR: CIMB Equities Research retains its Underweight outlook for the Malaysian automobile sector as the weak consumer sentiment has seen buyers refraining from spending on big ticket items.

The research house said on Wednesday the sentiment was reflected in the lower sales of new vehicles or total indusry vehicles (TIV) in the January to November period, as they slumped 13.7% on-year due to persistent weakness in consumer sentiment. The 11 month sales were at their weakest since 2009. 

CIMB Research expects margins for automakers to stay compressed as they try to boost flagging sales via aggressive promotional campaigns. 

DRB-Hicom is our top pick, premised on Proton’s potential turnaround pending the entry of foreign strategic partner. Upside risk to the sector is a pick-up in consumer sentiment resulting in higher sales volumes,” it said.

To recap, the Malaysian Automobile Association reported that TIV increased 2.5% on-month in November as most non-national marques showed improvements; exceptions are Mitsubishi (-10% on-month) and Mazda (-20.1% on-month).

New vehicle sales, or total industry volume (TIV), increased 2.5% on-month to 49,000 units in November 2016. On a on-year basis, TIV fell 12.5%. The 11M16’s TIV at 515,000 units, still lags the previous corresponding period's sales by 13.7%. 

“This makes up 88% of our FY16 forecast of 586k units (-12% on-year) and 89% of Malaysian Automotive Association’s (MAA) forecast of 580k units. 

“There is downside risk to our and MAA’s TIV forecasts despite expectations of TIV improvements in December on the back of better promotional offerings and an anticipated price hike in 2017,” it said.

As for  non-national marques, the TIV rose 9.2% on-month in November to 26,000 units after consecutive monthly declines since September 2016. Most mass-market marques saw on-month improvements, except Mitsubishi (-10% on-month), Mazda (-20.1% on-month) and Volkswagen (-36% on-month). 

CIMB Research pointed out this was on the back of deliveries of new model launches and rebates given by non-national marques. 

National marques declined by 4% on-month as consumers wait for year-end promotions, which was just recently launched in early-December.

“The top five market share positions were maintained in November, with Perodua in pole position (32%), followed by Honda (18%), Proton (15%), Toyota (13%) and Nissan (6%). 

“Proton has maintained its no.3 position, after it overtook Toyota in October, and we think the year will end with Proton carving a bigger slice of the market than Toyota as consumers in the low-income space are likely to opt for Proton’s cheaper models (like Saga and Persona).

“In 2016, Honda, Toyota and Nissan raised ASPs by 2-9%, while Proton increased its ASP by 5%. We expect another round of ASP hikes in 2017 due to higher opex following the currency volatility. 

“Perodua indicated it may raise ASP, while Mazda plans to raise its ASP by 3-5% in 2017. We do not expect this to have a major impact on marques like Mazda with its a mid-to-high income consumer base. But it could be negative for Perodua as its low-income consumer base is more sensitive to price hikes,” the research house noted.

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