Automotive (OVERWEIGHT): Sep TIV: A minor speed bump

Automotive (OVERWEIGHT): Sep TIV: A minor speed bump

• Sales decelerated but not completely stalled. Total industry volume (TIV) fell to 47.8k units (-7% MoM, -13% YoY) in Sep, taking 9M14 TIV to 492.3k units (+1% YoY), achieving 73% of our 2014 forecast of 675k units (+3% YoY). The underperformance came mainly from the national marques (-13% MoM) as: (i) buyers held off from buying in anticipation of new launches (i.e. A/B-segment Proton Iriz in end-Sep and A-segment Perodua Axia mid-Sep); and (ii) as the Perodua Viva was sold out.
• Expect strong pick-up again in Oct. Our 2014 TIV forecast is unchanged and we see slight upside from the tremendous response to the all-new Perodua Axia and the Proton Iriz. To date, the Perodua Axia has received more than 32,000 orders (~7,000 units delivered, of which ~1,500 were delivered in Sep), while the Proton Iriz registered >17,000 orders. Against this backdrop, we believe the weakness in Sep was only temporary and we expect a strong recovery from Oct onwards.

We remain OVERWEIGHT on the sector. MBM is our Top Pick as we prefer it over BAuto for its more compelling valuations and exposure to the small-car segment via the Perodua. In addition, MBM is on track for earnings recovery as its new start-ups (ie OMI alloy wheel plant, the Perodua and Hino plants) begin to contribute. Trading at 7.3x FY15F PER, 0.7x FY14F P/BV and 3+% yield), MBM offers a good entry point with 23% upside potential.

We still like BAuto with upside to our forecasts on: (i) an earlier launch of the B-segment Mazda2; and (ii) Philippines’ strong TIV growth (8M14: +28% YoY). UMWH remains a BUY while TCM a SELL.