MY Automotive (NEUTRAL) - Stellar 1H15 Perodua vehicle sales

Perodua reported its 1H15 vehicle sales and export plans in 2H15.

Automotive (NEUTRAL) – Stellar 1H15 Perodua vehicle sales

• 1H15 Perodua vehicle sales rose 15% YoY to 108.5k units, making 49% of our 2015 target of 220k units for Perodua; within expectations. The impressive performance is mainly attributed to strong demand for the Axia – recorded sales of 53.7k units in 1H15. A total of 134k orders for the Axia have been received since it was open for booking in Aug 2014

. To-date (July 9th) 83.7k units have been delivered since launch in Sep 2014. Based on Perodua’s internal analysis, estimated market share for 1H15 stands at 33.8% (+5.4ppts YoY) based on forecasted TIV of 321.4k units. On production, Perodua churned out 116k vehicles in 1H15, up 12% YoY.

• Targets to export Axia in 2H15. Perodua is looking to export its latest energy efficient vehicle (EEV), Perodua Axia, to countries such as Mauritius, Sri Lanka and Brunei by 3Q-4Q this year, as it has stopped exporting Perodua Viva. We expect Perodua to export 30k units in 2015.
• No change in our views & picks. Our 2015 TIV forecast and NEUTRAL call is unchanged. Our Top Pick remains with MBM which will benefit from its 22.6% associate stake in Perodua whose recent success in vehicle sales growth and lower cost of production from higher automation at its new plant will translate to stronger earnings contribution.

We still like BAuto for its: (i) attractive new launches and (ii) presence in the Philippines (5M15 TIV: +20% YoY) but we caution investors on its JPY cost exposure (~40% of COGS) due to the volatility of JPYMYR in the past month. Our sensitivity analysis suggest that for every 1% change in our base assumption of JPY100/MYR3.03, BAuto’s bottomline will be impacted by ~3% assuming no hedging mechanism in place. Valuations are undemanding at 9x CY16 PER backed by attractive yields of almost 5% (based on 50% DPR).