MY Automotive (NEUTRAL) - Feeble February TIV

Automotive (NEUTRAL) - Feeble February TIV

• Maintain Neutral.  Feb 2015 TIV remains weak (-0.4% MoM) at 50.4k units due to a shorter working month from Chinese New Year holidays. Our 2015 TIV forecast of 660k units (-1% YoY) is unchanged, having considered weaker consumer sentiment due to GST.

Within the non-national segment, Toyota’s Feb unit sales (+26% MoM, -35% YoY) recovered from a multi-year low in Jan 2015, but still trailed behind recently-crowned Honda (-7% MoM, +40% YoY). 2M15 national marques TIV grew 8% YoY and gained 3.7ppts market share from the non-national marques, on the back of stronger deliveries by Perodua (+25% YoY; top gainer in terms of volume).

• TIP (Total Industry Production) slowed in Feb 2015 (-17% MoM) due to lower production across the board by the major marques except VW. This is seasonal given a shorter working month due to Chinese New Year holidays in Feb. TIP is usually a leading indicator to sales; as such, we expect sales for Hyundai and Toyota to be slow in the near-term given a significant drop in production (-88% MoM for the former and -57% MoM for the latter). Malaysia remains as a net auto exporter in 2M15 to the tune of 2.6k units (vs. a net import of 70k units in 2014).
• What’s our view? Post Chinese New Year holidays in Feb, we expect TIV to rebound slightly in Mar-Apr, spurred by recent attractive launches in the B, C, D and CUV-segments (i.e. Perodua MyVi, Mazda2, Mazda3 CKD, Toyota Camry Hybrid, Honda HR-V) but capped by wary consumer sentiment ahead of GST implementation.

Car prices post GST implementation remain uncertain, complicated by the MYR/USD swings which affect most auto players due to USD-denominated component costs. We are concern on auto players with (i) high USD-denominated costs and (ii) substantial old inventories (i.e. unsold 2014 vehicles) which would lead to steep discounts to clear the inventories, leading to erosion in margins. As such, we caution for a potentially weaker 1Q15 auto earnings.

·         Stock picks. We remain selective on our stock picks and prefer auto players with exposure to (i) economical car segments (A, CUV-segment) which are not overcrowded by intense competition (like that in the B-segment), and (ii) JPY-denominated import costs on weaker JPY/ MYR forex forecast. We are BUYers of MBM and BAuto. MBM is our top pick for its more attractive valuations and exposure to the small-car segment via Perodua. We still like BAuto with upside to our forecasts for its: (i) attractive new launches, (ii) JPY cost exposure and (iii) presence in the Philippines (2014 TIV: +29% YoY).