Automotive sector
Maintain neutral: Total industry volume (TIV) fell 23% year-on-year and 9% month-on-month to 41,790 units in June, continuing May's double-digit pullback of 10% y-o-y and m-o-m. The y-o-y slippage is the worst since May 2006's 24% decline, underscoring the knock-on effects of Japan's earthquake and tsunami in March. Honda was by far the worst performer in June as its sales slumped 54% y-o-y to 1,959 units. The other two major Japanese makes fared better, with Toyota falling 20% y-o-y but holding steady m-o-m and Nissan sliding 17% y-o-y and 7% m-o-m. In 1H11 TIV dipped 1% y-o-y to 297,203 units as the 10% y-o-y fall in sales during the post-quake 2Q period was partially cushioned by a 7% sales increase in 1Q11.
Proton beat Perodua to the top spot in the local automotive industry with a market share of 29% in 1H11 compared with 27% for Perodua which had to grapple with supply problems and slow sales of the Myvi in the run-up to the release of the new model in 2Q. Proton, in contrast, felt less of the knock-on effects of the Japan disaster due to its high localisation rate.
Myvi's sales in 1H were sideswiped by buyers' wait-and-see attitude and supply shortages as production was halted to make way for the rollout of the new Myvi 1.3l on June 16. Sales were especially weak in the two months leading up to the Myvi launch. But Proton has only a two percentage point (ppt) lead over Perodua, which is well-armed to claw back market share following the launch of the new Myvi. Response has been strong as the Myvi has garnered 19,000 bookings. Perodua expects to deliver about 10,000 units of the new model this month and about 8,000 to 8,500 thereafter. We are conservatively projecting monthly sales of 7,500 units for the new Myvi.
Among the three Japanese auto players, Honda felt the aftershocks of the quake most. Its sales volume fell 13% in 1H, much worse than Toyota's 6% and Nissan's 1% declines. Nissan's inventory buffer cushioned it somewhat from the supply snags in 2Q. In 1H11, market share was largely unchanged at 14% for Toyota and 6% for Nissan. But Honda's market share slid by almost 1 ppt to 6.5%. Sales of other non-Japanese makes held up well, Hyundai (+30% y-o-y), Mercedes Benz (+46% y-o-y) and BMW (+34% y-o-y).
Vehicle sales statistics are negative news for the auto sector as they highlight the severity of the supply situation in Malaysia. Annualised year-to-date sales stand at 594,406 units, 2% lower than 2010's 605,156 units and the Malaysian Automotive Association's recently revised projection of 608,000 (618,000 previously), and 4% below our projection of 618,126 units which works out to 2.1% growth. But we are keeping our 2011 sales projection of 618,126 units as we expect sales in the subsequent months to pick up. The supply situation in Malaysia is improving as auto players are gradually ramping up their production.
However, we flag that there could be downside risk to our vehicle sales projection from the recent amendments to the Hire Purchase (HP) Act which took effect on 15 June. Among the changes to the Act is the fixing of a minimum down payment for the purchase of a car, which makes the down payment non-negotiable. This means that auto companies and dealers will no longer be able to offer zero-down payment packages. There are also more restrictive measures on repossession, which could lead to stricter HP loan approvals.
We are retaining our earnings projections and target prices for all the three stocks under our coverage. Tan Chong Motor Holdings Bhd remains an 'outperform' and our top pick with a sum-of-parts-based target price of RM6.55. We remain 'neutral' on UMW Holdings Bhd (RM8.00 target price) and Proton Holdings Bhd (RM4.10). While demand remains relatively strong, we think that this year's sales growth will be a very sedate 2% to 3%. We maintain our 'neutral' stance on the sector. ' CIMB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
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