Auto Stats: Automotive (NEUTRAL) - Winter is still here

Auto Stats: Automotive (NEUTRAL) - Winter is still here

• Weak January car sales is officially a new norm. In the last 3 years, January car sales has seen a double-digit MoM decline mainly due to aggressive sales campaign by dealers in the month before and Jan 2017 was no exception, with TIV down 31% MoM to 44.7k units (+0% YoY). The weak sales volume should persist into February (due to CNY holidays) before rebounding in March (full-working month). Most auto companies have yet to report their Dec 2016 quarter results; expect margins contraction from higher A&Ps and imported component costs. The clouds have not cleared for the sector. Maintain NEUTRAL with BUYs on MBM and Pecca for their Perodua exposures.
• 4Q16 results and beyond. Despite a strong 4Q16 vehicle sales (+13% QoQ), we are cautious on auto earnings with pressure points from a weak MYR (which lifts imported component costs) and lower ASPs due to down-trading by consumers. Going forward, we see further downside to our earnings estimates; we have imputed USD1/MYR4.10 and JPY100/MYR3.80 2017 forex estimates for auto stocks in our coverage (vs USD1/MYR4.46 and JPY100/ MYR3.92 currently).
• Neutral still on the sector. We keep our 2017 TIV sales forecast of 610k, which is a 5% YoY growth, underpinned by full-year contributions of mass-market launches in 2H16 (i.e. Perodua Bezza, Proton Saga & Persona) and new launches (i.e. Honda BR-V, Perodua D20N, Mazda CX-5). Our preference remains with auto players with exposure in the economical car segment; our Top BUY Pick being Pecca for its exposure to Perodua. We also like MBM for its exposure to Perodua from three angles, as a (i) shareholder, (ii) car dealer, and (iii) supplier of autoparts. Elsewhere, DRB-Hicom (DRB MK, Not Rated) should benefit from stronger Proton and Honda vehicle sales.