Automotive (OVERWEIGHT): A-segment Perodua Axia EEV is here

Automotive (OVERWEIGHT): A-segment Perodua Axia EEV is here

• What's New?  It was reported in the news that Perodua will start taking orders for its latest model, A-segment EEV (energy efficient vehicle) Perodua Axia, tomorrow. The Perodua Axia will debut in four variants – Standard E, Standard G, Special Edition and Advance. The base Standard E model will be priced competitively from MYR24,900 (Viva was priced from MYR22-28k). Packed with more good news for consumers, the Axia will come with a five-year warranty, a first for Perodua cars.

The Axia features the use of a new 1KR three-cylinder engine, which is based on Daihatsu’s 1KR-DE used in the Ayla in Indonesia. The 1.0 litre all-aluminium 12-valve DOHC engine will produce 65 PS at 5,000 rpm and 87 Nm of torque at 3,600 rpm. It weighs just 69 kg, which is 10 kg lighter than the Viva’s cast iron 1.0 litre engine.

• Whats Our View?  We are positive on this development. The Axia will be produced in Perodua’s new state-of-the-art plant. Named Perodua Global Manufacturing, this new plant is: (i) equipped with 75% automation (vs 30% in the existing plant); and (ii) 60% smaller than the existing plant. With this new plant up and running, Perodua will be able to raise its production capacity to 400k units p.a. thus enabling Perodua to be a regional hub for Daihatsu vehicles. We gather that Daihatsu’s biggest market in ASEAN is Indonesia, commanding 15% market share (186k units) from total TIV of 1.2m units in 2013.

Potential upside to our Perodua forecasts. Our forecasts assume Perodua’s vehicle sales to be at 200k/215k/225k units in FY2014/15/16 of which 10k/15k/25k units are conservatively assigned for the export markets. With potential uptick in earnings, we advocate BUY on UMW and MBM for exposure to fast-growing Perodua as it gears up for exports.

UMWH also offers a cheaper entry point (currently trading at 12.9x FY15 PER) into the robust oil & gas drilling space via its 55.2%-owned UMWOG (BUY; TP:MYR5.15) which is set to secure new charter contracts for its new jack-up rigs to be delivered in the near–term. Our discounted-SOP TP for UMWH stands at MYR12.44.

Meanwhile, MBM, as a well-known auto-parts (i.e seatbelts, airbags, wheels) manufacturer, could also stand to benefit from increasing CKD activities in Malaysia since the revision of the National Automotive Policy early this year. Since then, MYR2b has gone into Malaysia’s automotive industry and the Malaysia Automotive Institute (MAI) expects another MYR5b-7b from the issuance of two new licenses to produce EEVs. Valuations are compelling at 6.9x FY15 PER and 0.7x FY15 PBV, supported by 3% yield.