Auto Stats: Automotive (NEUTRAL) - Clouds have not cleared

Auto Stats: Automotive (NEUTRAL) - Clouds have not cleared

• Better year ahead? 2016 TIV sales dropped 13% YoY to 580.1k units (worst YoY contraction in the last 15 years) and were within expectations at 101% of our forecast. Looking ahead, we expect TIV to see a 5% YoY recovery in 2017, fuelled by a full-year contribution of mass-market launches. Nonetheless, we also caution that auto profitability would likely remain suppressed with pressure points coming from a weak MYR and lower ASPs due to down-trading by consumers. Maintain NEUTRAL on the sector; our Top Pick is Pecca for its (i) Perodua exposure and (ii) entry into the aviation space.
• Strong close for 2016 TIV… Commendable MoM rebound in Dec 2016 TIV (+32% YoY) was led by Perodua (+59% MoM, +14% YoY) on (i) strong deliveries of the Bezza model and (ii) attractive sales campaign for its remaining 2016 inventories. Elsewhere, stronger MoM sales recorded by the three major Japanese marques also lifted Dec 2016 TIV to a 12-month high. Notably, Honda has dethroned Proton for the first time, as the second best-selling marque in Malaysia.
• …to result in sales hangover in 1Q17. MoM TIV surge at the expense of profitability would likely dent auto players’ profitability in 4Q16 and cause a sales overhang in early-1Q17. Furthermore, the persistent strength in the USD and JPY against MYR will likely weigh down on auto players’ profitability in the upcoming 4Q16/1Q17 results.