Honda continued to show impressive growth.
KUALA LUMPUR: CIMB Equities Research is maintaining its Underweight call on the automobile sector due to sluggish sales and margin erosion from higher operating expenditure (opex) and intense competition.
It said on Monday the auto sector trades at 1.1 times CY18F price-to-book value (P/BV), in line with its three-year historical mean.
“However, disappointing earnings over the next one year could present downside risks. Key upside risks to our call are the strengthening of Ringgit vs US$ and Japanese Yen and better-than-expected total industry vehicle (TIV) growth. Bermaz remains our top auto sector pick,” it said.
To recap, CIMB Research said in July 2017, TIV fell 3.4% on-month on fewer working days post the Hari Raya holidays and technical issues with the e-daftar system, which affected the vehicle registration process.
The Malaysian Automotive Association (MAA) expects sales in August 2017 to improve on-month due to ongoing promotional campaigns by dealers and fulfillment of back orders as the e-daftar system is expected to return to normal.
The January-July 2017’s TIV grew 4.7% on-year to reach 333,014 units, driven by higher passenger vehicle sales of both national and foreign brands, which rose 7.9% and 4.1%, respectively.
The growth came from various new model launches from both foreign and national brands. In addition, the stronger TIV sales were in line with higher passenger car hire purchase loan applications and approvals in 6M17, which rose 2% and 4% year-to-date, respectively.
“Overall, January-July 2017’s TIV made up 57% of our full-year TIV forecast of 580,000. However, total vehicle production volume in January-July 2017’s fell by 1% on-year.
“Despite the improving TIV sales, MAA said total vehicle production volume fell by 1% on-year to 299,270 units in 7M17,” it said.
MAA attributed the production decline to the cautious stance taken by the automakers and inventory adjustments amid the soft market environment.
Perodua remained the local brand market leader with a 35.6% share after selling 118,679 vehicles in 7M17 (+5.5% on-year).
Honda continued to show impressive growth, raising its market share from 14.9% in 7M16 to 18.4% in 7M17, driven by new model launches – BR-V, City facelift, Jazz facelift, CR-V and City hybrid – as of July 2017.
Meanwhile, Proton stayed in third place, with 13.6% market share, after recording 14.5% sales growth 7M17.
“We expect TIV sales growth to ease in 2H17F due to a high base in 2H16 as total 2H16 TIV grew by 11% half-on-half.
“The sector is also facing headwinds from currency volatility, which has resulted in higher import costs for CBU models and CKD kit components.
“We expect the market to remain competitive, with prolonged discounting as dealers continue to drive down inventory levels. Overall, we still project 3% TIV growth in 2017F,” said CIMB Research.
Limited time offer:
Just RM5 per month.
