Tuesday, July 25, 2017

Entering a seasonally stronger 2H17. June 2017 TIV remained healthy (>50k unit-level) at 50.3k units (-1% MoM, -12% YoY), bringing 1H17 TIV to 284.5k units (+3% YoY). This is within our 2017 TIV forecast of 610k (+5% YoY), expecting a stronger 2H17 from (i) year-end

Auto Stats: MY Automotive (POSITIVE) - A decent 1H17
  • Entering a seasonally stronger 2H17. June 2017 TIV remained healthy (>50k unit-level) at 50.3k units (-1% MoM, -12% YoY), bringing 1H17 TIV to 284.5k units (+3% YoY). This is within our 2017 TIV forecast of 610k (+5% YoY), expecting a stronger 2H17 from (i) year-end sales campaigns and (ii) mass-market launches. We expect July TIV to slow down following stronger sales post pre-Hari Raya sales campaigns in May-June. Our 2017 TIV forecast is unchanged for now. We remain POSITIVE from a bottom-up stock pick with BUYs on MBM and Pecca for Perodua exposure, and TCM on trough valuations.
  • Progressive improvement in earnings expected. Into 2H17, we expect a stronger HoH for TIV with significant sales pick-up in 4Q17, on year-end sales campaign and a major model launch by Perodua and Mazda. This, together with the MYR’s recovery against USD could lead to some QoQ earnings recovery for the auto stocks, especially those with high cost exposure in USD and JPY due to imported cars and components. That said, we expect the earnings recovery to be on a gradual basis tailing MYR’s positive momentum against USD and JPY.
  • A bottom fishing strategy advocated. Valuations wise, we believe that PBVs have troughed for players such as TCM (0.4x FY17 PBV) and MBM (0.5x FY17 PBV). In addition, we see some signs of recovery for both companies with support from Nissan for the former and Perodua anchoring earnings growth for the latter. We also like Pecca as a leading supplier of leather seat covers to major marques which could also see volume expansion from the Geely-Proton tie-up.

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