Automotive (OVERWEIGHT): Hari Raya hangover in August

Automotive (OVERWEIGHT): Hari Raya hangover in August

• What's New?  August’s TIV of 51.1k units (-15% MoM) took 8M14 TIV to 444.5k units (+3% YoY), 66% of our 2014 TIV forecast of 675k units (+3% YoY). August’s vehicle sales slowed down from a high base in July (60.3k units) during the aggressive Hari Raya sales campaign. Post Hari Raya, consumers also adopted a wait-and-see approach in anticipation of new A/B-segment launches by the national marques (i.e. A/B-segment Proton Iriz and A-segment Perodua Axia).

Except for Mazda (+4% MoM) and Honda (+0% MoM), all major marques recorded MoM contraction with VW (-32% MoM) and the national marques (-23% MoM) being the biggest losers. Mazda grew on stronger demand for the SUV CX-5 while Honda maintained its position with the new B-segment Jazz supporting sales.

• Whats Our View?  Our 2014 TIV forecast is unchanged but we see slight upside from the launch of the all-new Perodua Axia and Proton Iriz in Sep. Perodua Axia, launched last week, has already recorded bookings of 13.5k units (3-4 months orderbook). Meanwhile, Proton Iriz Is expected to be launched this week. As such, we expect Sep-Oct TIV to be stronger, above the 55k-unit level.

We remain OVERWEIGHT on the sector. We now prefer MBM over BAuto for its more compelling valuations. Besides exposure to 22.6%-owned Perodua, MBM is on track for earnings recovery as its new start-ups (i.e. OMI alloy wheel plant, Perodua and Hino manufacturing plants) will start to contribute. At current valuation (7.5x FY15 PER and 0.7x FY14 PBV, supported by 3+% yields), MBM offers a good entry point to (i) fast-growing Perodua and (ii) the robust auto parts manufacturing business. MBM offers a potential upside of 20% to our TP of MYR3.42, pegged at 9x FY15 PER.

Despite the run-up in share price (+99% YTD), we still like BAuto with upside to our earnings forecasts as it rides on: (i) Philippines’ strong TIV growth (7M14: +26% YoY), (ii) the launch of the B-segment Mazda2 and C-segment Mazda3 CKD and (iii) softening JPY against MYR which translates to cheaper component costs. UMWH remains a BUY while TCM is a SELL.