Jan 2016 TIV at almost 4-year low

Jan 2016 TIV plummeted 36% MoM and 12% YoY to 44.6k units (lowest in the last 47 months) as consumers had frontloaded purchases prior to price hikes beginning Jan 2016. Our 2016 TIV forecast of 645k units (-3% YoY) is unchanged. For now, sector valuations are just about fair (14.7x CY16 PER). BAuto is our only BUY call.

Red across the board

The MoM contraction in Jan 2016 TIV was seen across the board, except for Mercedes Benz (+26% MoM, +139% YoY), led by Toyota (-77% MoM, - 26% YoY) whose sales fell to a 12-year low. Perodua (-28% MoM, -3% YoY) continued to lead in market share at 35% (+3.1ppts YoY) while Honda (- 47% MoM, -12% YoY) remained the top seller in the non-national segment. The weak TIV was expected. Following a strong 4Q15, we expect 1Q16 to see an overhang in sales, further suppressed by (i) weak consumer sentiment, (ii) higher car prices and (iii) tighter HP financing guidelines (i.e. higher HP rates and loan rejection rates). Feb 2016 TIV would also be affected by a shorter working month due to the Chinese New Year (CNY) holiday; TIV could weaken further from Jan 2016 level.

Rocky road ahead

Higher costs of living coupled with the moderation in economic growth are factors that will continue to weigh on consumer sentiment especially for purchases of big ticket items (i.e. property and cars). As such, we expect 2016 TIV to contract by 3% YoY to 645k units. Elsewhere, stiffer competition amongst auto players and sustained weakness in MYR are detrimental to auto margins and profitability.

Stock picks

BAuto is our only BUY in the sector for its exclusive Mazda distributorship in Malaysia and the Philippines which are gaining traction. Its new, attractive launches (i.e. diesel models, CX-5 facelift CKD, CX-3 CKD in 2016) coupled with competitive pricing will drive forward sales growth. Its negative JPY-cost exposure is partially cushioned by its 60%-owned Philippines operation whose revenue is in PHP.

We see further earnings downside to UMWH (SELL) from its (i) auto (weak sales coupled with negative USD exposure) and (ii) O&G divisions (slow exploration activities of its jack-up rigs amid weak oil prices). 4Q15 results are due out on 25th Jan 2016.

Source: Maybank Research - 24 Feb 2016