Statistics Preview: Automotive (OVERWEIGHT): Momentary blip in September's TIV

Statistics Preview: Automotive (OVERWEIGHT): Momentary blip in September's TIV

• What's New? The press reported that September’s TIV fell to 47.8k units (-13% MoM) and took 9M14 TIV to 492.3k units (+1% YoY), making 73% of our 2014 TIV forecast of 675k units (+3% YoY). We believe that September’s vehicle sales dipped as consumers 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 launched in mid-Sep and end-Sep respectively).

Response was tremendous with Perodua Axia recording 32k units of bookings to-date while Proton Iriz recorded 17k units of booking. Our channel checks suggest that Perodua has delivered more than 7k units of Axia of which about 1.5k units was delivered in the month of September. As such, we believe September’s weakness in TIV is momentary and we expect a strong recovery beginning in the month of October.

Whats Our View?  Our 2014 TIV forecast is unchanged but we continue to see slight upside from the sales of the all-new Perodua Axia and Proton Iriz. Perodua Axia, in mid-Sep, has already recorded bookings of 32k units (4-5 months orderbook).

We remain OVERWEIGHT on the sector. MBM is our favourite over BAuto for its more compelling valuations and its exposure in the small car segment via Perodua. 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 (7.1x 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 27% to our TP of MYR3.42, pegged at 9x FY15 PER.

We still like BAuto with upside to our earnings forecasts as it rides on: (i) Philippines’ strong TIV growth (8M14: +28% 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.