CIMB Research keeps auto sector in Neutral

KUALA LUMPUR: CIMB Equities Research is maintaining its Neutral call on the automotive sector, with 2014 total industry volume (TIV) forecast to remain flat due to market saturation and with downside risk from possible credit tightening.

It said on Friday Tan Chong remained its top pick for the sector.

The Malaysian Automotive Association (MAA) released details of January 2014 industry sales. TIV dropped 8.7% on-year and 16.9% on-month to 50,273 units.

National car makers, Proton and Perodua, continued to lose market share to foreign marques. They started the year with a combined market share of 43% compared to 51% in January 2013.

Honda registered the biggest market share gain, with its share at 13% compared to 7% for the same time last year.

CIMB Research, in recapping the MAA data, said that after a very strong showing in December 2013 when TIV topped 60,000 units, January 2014 sales volume barely exceeded 50,000 units, falling 8.7% on-year because of the earlier timing of the Lunar New Year holidays, which was expected.

It said there was also a cooling-off period after December, which saw high sales due to the push to meet aggressive year-end sales targets.

“We expect heavy discounting and rebates to be reflected in the upcoming 4Q13 results. We reiterate our Neutral call on the sector, with 2014 TIV forecast to remain flat due to market saturation and with downside risk from possible credit tightening. Tan Chong remains our top pick for the sector,” it said.

On its outlook for 2014, CIMB Research expects TIV growth to be flat this year and forecast sales of 660,000 units.

It had expected TIV to come in flat in 2013 on the basis that the market was reaching saturation point (20 million registered vehicles on the road and the highest motorisation level in Southeast Asia, at 361 per 1,000 people).

‘We believe this factor will start to set in this year. TIV growth of 4.5% in 2013 exceeded expectations because of a conducive credit environment and heavy discounting.

“These factors could continue to support topline numbers in 2014 but margin pressure from discounting and the overhang of a weak ringgit will hit margins and valuations.

“Tan Chong remains our only Add call and the sector’s top pick. It is the only pure non-national car play and we expect it to get one of the three EEV manufacturing licences to be issued by under the National Automotive Policy,” it said. 

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