MY Automotive (NEUTRAL) - Slow start post year-end party

Automotive (NEUTRAL) - Slow start post year-end party

• Maintain Neutral.  Jan 2015 TIV fell 22% MoM to 50.6k units from a high base in Dec 2014 due to year-end sales campaigns. Our 2015 TIV forecast of 660k units (-1% YoY) is unchanged, having considered weaker consumer sentiment ahead of GST.

Alarmingly, Toyota’s TIV contracted 64% MoM (-39% YoY) and lost its top spot in the non-national segment to Honda (-21 MoM, +2% YoY). Toyota’s TIV in January trailed behind Nissan (-14% MoM, +4% YoY) who was second after Honda in the non-national segment.

In the national car segment, Proton’s TIV gained 2% MoM (-9% YoY) on improved deliveries of the B-segment Iriz. Meanwhile, Perodua’s TIV fell 16% MoM (+33% YoY), from a high base in Dec. Perodua reported delivery backlog of 50k units for the A-segment Axia and expects to clear these backlogs over the next 4-6 months.

• TIP (Total Industry Production) continues to strengthen for the 4^th consecutive month in Jan 2015 (+11% MoM) led by higher production across the board by the major marques. Strong TIP was led by Mazda (+48% MoM) and Proton (+26% MoM) for their new models (i.e. Mazda3 CKD and Proton Iriz). As TIP is usually a leading indicator to sales, we expect sales for Mazda and Proton to be better in the near-term. Malaysia emerged as a net auto exporter in January to the tune of 6.1k units (vs. a net import of 70k units in 2014).
• What’s our view? We continue to expect 2015 TIV to contract 1% having considered (i) our 2015 real GDP growth forecast of 4.5%, (ii) the normal replacement cycle for cars >10 years old which account for ~25% of cars on the road. While February TIV is likely to remain weak at the sub-50k level due to a shorter working month stemming from the Chinese New Year holiday, we expect vehicle sales to rebound in Mar-Apr spurred by recent attractive launches in the B, C and CUV-segments (Perodua MyVi, Mazda2, Mazda3 CKD, Honda HR-V).

·         Stock picks. We remain selective on our stock picks and prefer auto players with exposure to (i) economical car segments (A, CUV-segment) which are not overcrowded by intense competition (like that in the B-segment), and (ii) JPY-denominated import costs on weaker JPY/ MYR forex forecast. As such, we advocate BUYs on MBM and BAuto. MBM is our top pick for its more attractive valuations and exposure to the small-car segment via Perodua. We still like BAuto with upside to our forecasts for its: (i) attractive new launches (i.e. Mazda2, Mazda3 CKD, CX-3) and (ii) JPY cost exposure.