Automobile Sector- 27 June 2009

Auto Sector - May TIV upped by 6.8% MoM

· National segment buoyed the TIV. Total Industry Volume (TIV) in May recorded at 43,944 units (-8.3% YoY, +6.8% MoM) led by national cars (+16.6% MoM) garnering 58.6% market share from 53.7% in April. Perodua continued to maintain market leadership with sales of 13,194 units (+7.5% MoM) or a 30% market share, thanks to solid Myvi (+17.3% MoM) and Viva (+3.0% MoM) sales. Proton improved significantly by recording stronger sales of 12,542 units (+27.9% MoM) or 28.5% market share from 23.8% a month ago, underpinned by the Saga (+10.2% MoM), Persona (+15.9% MoM) and a full month contribution from the Exora of 2,156 units which made up 17.2% of Proton’s sales volume in May.

· Non-national declined 16.8% YoY and 4.5% QoQ. Toyota maintains market leadership in the non-national segment despite sales was lower by 2.4% MoM and 2.7% YoY to 6,719 units or a 15.3% market share. We suspect Toyota continues to lose its market share to Honda mainly to the new Honda City. Interestingly to also note is the continuing strong monthly sales by Nissan (+5.5% MoM) since January underpinned by the resilient Grand Livina and particularly its commercial vehicles (+10.8% MoM). Separately, the luxury models (BMW, Benz and Volvo) continue to sell at surprisingly resilient average monthly sales of 680 largely due to attractive discounts.

· Maintain 2009 TIV estimate of 460,000 units. TIV of 203,760 units up to May accounts 44.3% of our estimate and 42.5% of MAA’s TIV target of 480,000 units. We continue to deem that the average monthly sales to-date of 40,752 units is encouraging and may well on the track to achieve the industry’s targets bolstered mainly by the upcoming facelifts/variants especially by Toyota in the 3Q 2009, the Tan Chong’s three new CBUs in the 2H 2009 and the upcoming Perodua MPV in November. We believe this will stir new excitement in the industry, hence, may held up the robust sales catalysed by the anticipated better economy in the second half of the year. Tight financing of between 3.25%-3.5% HP rates for the non-national segment and 3.6%-3.7% for the national cars may dampen sales, however, we expect this to be partially mitigated by strong promotional HP rates to as low as 2.3%.

· Maintain Neutral. We expect lack of catalysts to re-rate upward the automotive sector which is largely correlated to the economy growth. However, we also do not expect the sector to re-rate lower premised mainly on the on-going aggressive promotional HP rate and more new models in the pipeline in the 2H 2009 to lift up the consumer sentiment. Maintain our HOLD calls on UMW, Tan Chong and MBM. We are comfortable with these companies’ financial positions and undemanding valuations while waiting for the revival of the industry. The companies’ competent management are also worth credited in this challenging operating environment which are constructive when comes in the recovery of the sector. Re-iterate SELL on Proton. The FOREX (the Yen and USD against Ringgit) movement will remain as key earnings risk to the auto companies. On another note, a new refined National Auto Policy (NAP) is expected to be unveiled in September. We expect focuses will mainly be on the consolidation of sales network and vendors and development of more initiatives to the automotive parts and components.