Automobile Sector : Raya spike in June, 2016 TIV to see double-digit drop NEUTRAL

SECTOR FOCUS OF THE DAY

Automobile Sector : Raya spike in June, 2016 TIV to see double-digit drop                                             NEUTRAL

Bigger TIV contraction for 2016. The Malaysian Automotive Association (MAA) revised its forecast for the year to a contraction of 13% to 580K units (from a contraction of 2.5% to 650K previously). This was expected, and in line with our projection of a 12-15% TIV drop this year. 1HFY16 TIV was down 14.5% YoY with the biggest declines seen in Proton (-29%) and Toyota (-30%). June was the best TIV performance YTD due to Hari Raya. Sales for June were only down by 0.1% YoY (vs. a range of -7% to -28% in Jan-May), and up 28% MoM (near the 29% MoM jump seen in March).

Mazda continues to be the most consistent, with monthly average sales surpassing FY15 levels by 3%. As a result, Mazda was the only one to see a YoY improvement in 1HFY16 (up 12%). Volumes should hold steady in the next few months as Berjaya Auto (BAuto) puts its two CKD models (M3 and CX-5 - both major volume models, accounting for a total of ~56% of Mazda sales) at the frontline to defend margins amidst a weak Ringgit. We expect marginal improvement in the next six months, based on the past 3 years, which show that full-year sales are weightier in the last two quarters (compared to the first two), by 1-2ppts. Sales in July will be lower MoM due to the pent-up demand in June and the shorter working month (due to the Hari Raya holidays), the MAA said. Aside from Perodua and Mazda, car companies will struggle to minimise the YoY drop.

Consumer sentiment is still poor. Auto financing could see encouragement from the recent 25bps cut in the OPR, and the approval rate for auto loans bounced back to 51% in May after being below 50% in the preceding two months. However, fewer people are applying for car loans; the average of auto loans applied for Jan-May was lower by 12%-20% compared to annual averages in the past three years.

Others :

Maxis : Subscribers down yet again from postpaid segment         HOLD

ECONOMIC HIGHLIGHTS

Malaysia :  low inflation opens the door for further monetary easing

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