Auto Stats: Automotive (NEUTRAL) - Still on low gear

Auto Stats: Automotive (NEUTRAL) - Still on low gear

• Revise our 2016 TIV by -3% to 575k units (-14% YoY). Oct TIV sales continued to be suppressed at 47.9k units (-0.4% MoM) despite contribution from new mass market launches over the last two months. Weaker-than-expected sales were due in part to a wait-and-see approach adopted by consumers in anticipation of goodies for first-time car buyers in the National Budget. While car sales are expected to recover in the next two month due to aggressive sales campaigns, we see downside risk to our 2016 TIV forecast. As such, we have lowered our 2016 TIV forecast by 3% to 575k units, expecting Nov/Dec TIV to average 54.4k units per month.
• Dark clouds to affect auto players negatively. Recent strength in USD and JPY against MYR coupled with shrinking TIV are key factors that will continue to weigh down on auto players’ profitability in 2H16 (especially in the upcoming 3Q16 results). We see further downside to our earnings estimates; our current 2017 forex estimates for the auto stock in our coverage stands at USD1/MYR3.90 and JPY100/MYR3.70.
• Our 2017 TIV forecast of 610k units are unchanged. Despite a still challenging environment, we keep our 2017 TIV forecast of 610k units (+6% YoY) unchanged for now, supported by (i) the normal car replacement cycle and (ii) our in-house 2017 real GDP growth forecast of 4.5%. We continue to favour players with meaningful exposure to Perodua with our Top BUY Pick being Pecca. We also like MBM for its exposure to Perodua from three angles, as a (i) shareholder, (ii) car dealer, and (iii) supplier of autoparts. Elsewhere, DRB-Hicom (DRB MK, Not Rated) should benefit from stronger Proton and Honda vehicle sales.