Auto Stats: Automotive (NEGATIVE) - Impacted by Hari Raya

Auto Stats: Automotive (NEGATIVE) - Impacted by Hari Raya

• Maintaining full-year TIV forecast. TIV took a dive in July, falling 26% MoM, due to a shorter working month and frontloaded sales before the Hari Raya festivity. This brings 7M16 TIV to 318k units (-17% YoY), representing 53% of our 2016 TIV forecast of 590k units (-11% YoY). TIV should recover in August, helped by Perodua Bezza which has seen more than 6k units delivered since its launch on 21 July.
• The Bezza factor. We continue to favor players with meaningful exposure to Perodua with our Top BUY Pick being Pecca. Besides its exposure to Perodua which is on a growth trajectory with the Bezza model, it has a large potential win (>MYR100m) from the aviation sector if it secures the leather upholstery license from DCA. We also like MBM for its exposure to Perodua from three angles, as a (i) shareholder, (ii) car dealer, and (iii) supplier of autoparts. Valuations are attractive at 9x FY17 PER and 0.6x FY16 PBV.

Tan Chong Motor (TCM MK; HOLD; TP: MYR1.85) - Signs of recovery?

• Smaller losses in 2Q16. While still in the red, TCM’s 2Q16 core net losses narrowed by 58% QoQ, helped by improved sales mix and slightly lower imported component costs as the MYR recovered from a low against the USD. We make no changes to our earnings estimates for now as 1H16 core net losses are in line (52% of our FY16 forecast). We expect a better 2H16 as the industry enters a seasonally stronger half in terms of sales. Also, margins may recover with a stronger MYR. With limited downside to our unchanged MYR1.85 TP (0.45x FY16 NTA), we upgrade TCM to HOLD.
• Limited downside. Trading at just 0.5x PBV currently, we see limited downside to the stock. However, a further re-rating catalyst is yet to be seen; a strong rebound in MYR would be one of the catalysts for auto players. HOLD for now.

ViTrox Corp (VITRO MK; HOLD; TP: MYR3.90) - Awaiting next impetus

• Sustained revenue growth momentum in 2H16. Solid order backlog should see 1H16’s revenue growth momentum sustained in 2H16; 3-month average book-to-bill ratio remains healthy (>1x) at 1.11x as at end-Jul 2016. We make no changes to our topline projection but impute higher operating expense and tax rate to reflect 1H16 results. As a result, our FY16-18 earnings forecasts are lowered by 5%-8%. Correspondingly, our TP is now MYR3.90 (-5%), pegged at unchanged 14x CY17 EPS; maintain HOLD.
• Gearing up in 2017. We believe that 2017 would see some interesting transitions for ViTrox. Its move to the new Batu Kawan campus would see its manufacturing space triple in floor space to 450k sq ft. ViTrox is now facing floor space constraint especially in the MVS-T and AXI divisions which are seeing strong demand. Also, with the recent appointment of a CFO (previously vacant), we do not rule out corporate exercises (ie. M&A) going forward.