Automotive sector
Maintain negative: December’s total industry volume (TIV) dropped by 12.9% year-on-year (y-o-y) and 2% month-on-month (m-o-m) to 47,708 units. The lower sales in December were attributed to the floods in Thailand and seasonal factors. The Malaysian Automotive Association (MAA) guided that January 2012 vehicle sales should improve slightly given ongoing promotional campaigns and the rush to deliver new vehicles ahead of the Chinese New Year holidays.
In 2011, Perodua continued to maintain the top spot with a market share of 30% against Proton’s 26.4%. In the non-national vehicle segment, Toyota remained resilient with a 14.8% market share. However, the back-to-back disasters narrowed the market share gap between Honda and Nissan. The top three Japanese marques ended FY11 with only 25.6% market share of TIV down from 28.3% in FY10.
We anticipate vehicle sales to benefit from a pent-up demand after last year’s two major disasters. However, there are several potential dampeners for the auto industry: (i) The uncertain global economic outlook could dent consumer confidence and they would turn cautious on spending on big-ticket items such as cars.
(ii) A more stringent auto financing loan approval process and credit control. Bank Negara Malaysia imposed a new ruling on credit standards late last year. Banks are now required to assess loan applications based on the net income instead of the gross income of the borrower. About 70% of hire purchase loan applications have been rejected since the new ruling came into place. This would likely affect consumers within the low to middle income bracket, while mid-range Japanese and South Korean makes could be the hardest hit. Second-hand vehicle prices are expected to fall as the car sellers will offer discounts given the stricter credit financing conditions.
(iii) The weakening of the ringgit against the yen and US dollar could add cost pressure in terms of rising raw material prices and potentially higher completely-knocked down (CKD) costs. Among local stocks, the biggest exposure to the greenback over the yen is Tan Chong Motor Holdings Bhd with as much as 70% of its imports in US dollars. UMW Toyota Motor Sdn Bhd’s imports are mostly priced in dollars and its 38% associate Perusahaan Otomobil Kedua Sdn Bhd (Perodua) imports in yen. MBM Resources Bhd has no direct exposure to yen except via its 20% associate Perodua. Proton Holdings Bhd has about 7% exposure to the greenback via imported CKD content in its Inspira model.
We continue to maintain our 2012 TIV forecast of 611,140 units, lower than MAA’s 615,000 as we expect more severe repercussions for TIV from tighter credit conditions.
We reiterate our “negative” recommendation for the automotive sector. Under our coverage, we have only a “buy” on MBM Resources (target price: RM3.60 — under review) backed by its current low valuation among its peers. We maintain “neutral” on Tan Chong (TP: RM4.50), UMW (TP: RM6.90) and Proton (TP: RM5.50). — MIDF Research, Jan 31
This article appeared in The Edge Financial Daily, February 2, 2012.
Maintain negative: December’s total industry volume (TIV) dropped by 12.9% year-on-year (y-o-y) and 2% month-on-month (m-o-m) to 47,708 units. The lower sales in December were attributed to the floods in Thailand and seasonal factors. The Malaysian Automotive Association (MAA) guided that January 2012 vehicle sales should improve slightly given ongoing promotional campaigns and the rush to deliver new vehicles ahead of the Chinese New Year holidays.
In 2011, Perodua continued to maintain the top spot with a market share of 30% against Proton’s 26.4%. In the non-national vehicle segment, Toyota remained resilient with a 14.8% market share. However, the back-to-back disasters narrowed the market share gap between Honda and Nissan. The top three Japanese marques ended FY11 with only 25.6% market share of TIV down from 28.3% in FY10.
We anticipate vehicle sales to benefit from a pent-up demand after last year’s two major disasters. However, there are several potential dampeners for the auto industry: (i) The uncertain global economic outlook could dent consumer confidence and they would turn cautious on spending on big-ticket items such as cars.
(ii) A more stringent auto financing loan approval process and credit control. Bank Negara Malaysia imposed a new ruling on credit standards late last year. Banks are now required to assess loan applications based on the net income instead of the gross income of the borrower. About 70% of hire purchase loan applications have been rejected since the new ruling came into place. This would likely affect consumers within the low to middle income bracket, while mid-range Japanese and South Korean makes could be the hardest hit. Second-hand vehicle prices are expected to fall as the car sellers will offer discounts given the stricter credit financing conditions.
(iii) The weakening of the ringgit against the yen and US dollar could add cost pressure in terms of rising raw material prices and potentially higher completely-knocked down (CKD) costs. Among local stocks, the biggest exposure to the greenback over the yen is Tan Chong Motor Holdings Bhd with as much as 70% of its imports in US dollars. UMW Toyota Motor Sdn Bhd’s imports are mostly priced in dollars and its 38% associate Perusahaan Otomobil Kedua Sdn Bhd (Perodua) imports in yen. MBM Resources Bhd has no direct exposure to yen except via its 20% associate Perodua. Proton Holdings Bhd has about 7% exposure to the greenback via imported CKD content in its Inspira model.
We continue to maintain our 2012 TIV forecast of 611,140 units, lower than MAA’s 615,000 as we expect more severe repercussions for TIV from tighter credit conditions.
We reiterate our “negative” recommendation for the automotive sector. Under our coverage, we have only a “buy” on MBM Resources (target price: RM3.60 — under review) backed by its current low valuation among its peers. We maintain “neutral” on Tan Chong (TP: RM4.50), UMW (TP: RM6.90) and Proton (TP: RM5.50). — MIDF Research, Jan 31
This article appeared in The Edge Financial Daily, February 2, 2012.
