Statistics: MY Automotive (NEUTRAL) - Uninspiring recovery

Automotive (NEUTRAL) - Uninspiring recovery

• “Mild” recovery after a 33% nosedive in Apr.  May 2015 TIV recovered MoM, by 13% to 51.3k units, bringing 5M15 TIV to 264.7k (-4% YoY), meeting 40% of our full year forecast of 660k units (-1% YoY) – within expectations. The recovery was however rather “mild” as May TIV was still down by 8% YoY.

The MoM recovery in May TIV was led by Proton (+67% MoM, -18% YoY) and Mazda (+64% MoM, -11% YoY), while VW (-36% MoM, -29% YoY) emerged the biggest loser in the month. In 5M15, Perodua and Honda led in terms of market share gains, adding 6.5ppts and 2.3ppts YoY respectively. Meanwhile, Proton and Toyota shed 3.8ppts YoY of market share each.

• Expect stronger recovery in 2H15 TIV. We expect Jun TIV to strengthen further, aided by pre-Hari Raya sales campaigns. We make no change to our 2015 TIV forecast of 660k units (-1% YoY) as we expect TIV to recover further in 2H15 on aggressive sales campaigns by dealers in order to meet their targets. However, we caution that stronger TIV during sales periods will erode profitability margins due to the A&Ps. Our 2015 TIV forecast of 660k units (-1% YoY) is unchanged.
• No change in our views & picks. We remain selective on our picks and place preference on auto players with significant presence in the economical car segment (energy efficient vehicles) who are not net USD importers. As such, we reiterate our BUY call on MBM, a purer proxy to Perodua’s growth. Our BUY call is premised on (i) stellar Perodua vehicle sales growth by its 22.6%-owned Perodua (5M15 TIV: +19% YoY), (ii) strong ~5 months order backlog for A-segment Axia (recorded 119k bookings since Sep 2014 launch; delivered 75.3k units as at end-May 2015) and (iii) undemanding valuations (7.5x CY16 PER, 0.9x FY14 PBV) despite a 20% YTD gain in share price.

BAuto remains a BUY for its positive exposure in JPY and earnings growth potential from new model launches and footprint in high-TIV growth market, the Philippines (4M15 TIV: +21%). Meanwhile, we stay sideline on net USD exporters, UMWH and TCM.