• Festive dent; maintain OVERWEIGHT. Total industry volume (TIV) skid 21% mom
during the festive-shortened month of September. On yoy basis, TIV also slipped
6%, dragged down by weaker sales for Proton (-14% yoy) and Perodua (-13% yoy).
We should see a rebound in October as the number of working days normalise. We
maintain our OVERWEIGHT stance on the auto sector as major demand drivers
such as the economic outlook, consumer sentiment, the availability of credit and
new models are intact. On the cost front, a stronger ringgit against the greenback
and the Japanese government’s recent moves to control the rising yen are good
news for auto players. Factors that could catalyse the sector include 1) strong sales
performances, 2) a firming ringgit, and 3) more accommodative government
policies. Tan Chong remains our top pick in the sector.
• Maintain TIV growth projection of 10%. September sales brought YTD TIV to
453,249 units, up 14% yoy. Annualised YTD sales volume now stands at 604,332
units, 6% above MAA’s projection of 570,000 (+6% yoy) and 2% above our estimate
of 590,955 units. We are keeping our projection of 10% growth in TIV this year as
we expect the yoy sales growth to moderate in the remaining months given the
higher base of comparison. Also intact is our 5% TIV growth assumption for 2011.
• Nissan outpaced its Japanese peers. Although Nissan’s sales volume shrank 9%
mom, it did much better than its peers Toyota (-16% mom), Honda (-39% mom) and
also the industry (-21% mom). As a result, its market share rose by close to 1% pt to
6.6% in September. Toyota also gained 1% pt market share to 15.5%, mostly at the
expense of Honda. Perodua was one of the biggest losers during the month as its
market share slipped by more than 2% pts to 28.7%.
• Tan Chong stays our top pick. We are retaining our sales assumptions and
earnings projections for all the three auto stocks under coverage. Tan Chong
remains our preferred pick with an Outperform recommendation and a target price
of RM9.30. Backed by its expansion plans and stronger industry fundamentals, Tan
Chong boasts impressive earnings growth potential over the next three years, which
should support our EPS CAGR projection of 47%. We make no changes to our
Outperform call for UMW (TP: RM8.70) and Trading Buy recommendation for
Proton Holdings (TP: RM5.95).
O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell
Source: Company, CIMB Research
September vehicle sales
First yoy dip of the year. Total industry volume (TIV) in September contracted 21%
mom as September had fewer working days due to festivities and August was a
seasonally strong month. All vehicle segments recorded a mom drop in sales. On yoy
basis, TIV also slipped 6%, dragged down by weaker sales by Proton (-14% yoy) and
Perodua (-13% yoy). September sales brought YTD TIV to 453,249 units, up 14% yoy.
We should see a rebound in October when conditions normalise.
Market share movementsNissan gained share. Although Nissan’s sales volume shrank 9% mom (Figure 4), it
did much better than its peers Toyota (-16% mom), Honda (-39% mom), and the
industry (-21% mom). As a result, its market share rose by close to 1% pt to 6.6% in
September. Toyota also gained 1% pt market share to 15.5%, mostly at the expense
of Honda. Perodua was one of the biggest losers during the month as its market share
slipped by more than 2% pts to 28.7%
Transformation story; Tan Chong remains our top pick. Nissan’s annualised sales
volume stands at 35,088 units, 2% ahead of our projection of 34,500 units. Backed by
its expansion plans and stronger industry fundamentals, Tan Chong boasts
impressive earnings growth potential over the next three years, which should support
our EPS CAGR projection of 47%. Recently, it rounded off its Indochina strategy with
the proposed acquisition of 74% of Nissan Vietnam. With that, Tan Chong now has a
foothold in Laos, Cambodia and Vietnam. We maintain our Outperform
recommendation given the potential re-rating catalysts of 1) stronger earnings growth
trajectory, 2) new model pipeline, and 3) strategic positioning which will help it gain
market share and tap into regional demand. No changes are made to our earnings
projections and SOP-based target price of RM9.30.
ToyotaToyota’s September sales declined 16% mom to 6,754 units as sales fell across the
board except for Toyota Rush which recorded a 16% mom sales increase. Despite the
recent launch of the facelifted version, the Corolla Altis staged the weakest
performance in Toyota’s product line-up in September, with sales tumbling 35% mom.
The good news is Toyota’s 1% pt market share gain in September, which we think
was mostly at the expense of Honda.
UMW is an attractive laggard; maintain Outperform. Toyota’s annualised sales
volume of 89,720 units is largely within our projection of 91,000 units. Perodua’s
annualised sales volume of 188,148 units is also within our projection of 189,000
units. With 46% share of the domestic market through Perodua and Toyota, UMW is a
good proxy for the auto sector. However, its share price has risen only 6% YTD, well
behind the KLCI's 17% gain. We think that sentiment on the stock could be weighed
down by the losses at its O&G division. But we expect these losses to narrow in view
of WSP's improving performance and the commissioning of Naga 2. This, coupled
with improving auto earnings on the back of a strengthening ringgit and increasing
vehicle sales, should provide a basis for a re-rating. We reiterate our Outperform call
given the potential re-rating catalysts of 1) rising contribution from the auto segment,
2) recovery in its O&G earnings, and 3) listing of its O&G division. No changes are
made to our earnings projections and SOP-based target price of RM8.70, which
continues to tag target P/Es of 13.5x to its auto division, 10x to manufacturing &
equipment and 7.5x to O&G.
ProtonProton’s sales in September fell 20% mom. Sales of its core models (Persona, Saga,
and Exora) were 6-29% lower on a mom basis. Waja registered the steepest sales
decline of 52% as consumers waited for the official launch of its replacement, Proton
Inspira, in mid-November. Recall that the Inspira was open to bookings on 14 Oct.
Maintain Trading Buy for Proton. Proton’s annualised sales volume stands at
160,441 units, which is broadly within our projection of 159,000 units. We are
encouraged by management’s ongoing efforts to restructure the company. Apart from
the recent management restructuring of Lotus and the current push for its turnaround,
Proton is also embarking on initiatives which could help tackle the overcapacity, i.e.
the aggressive push for exports and plant consolidation. Fundamentally, Proton’s
improving financials are also encouraging. We maintain our Trading Buy
recommendation in view of the emergence of potential near-term catalysts such as 1)
new model launches, 2) ongoing restructuring of its internal operations, 3) more
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inroads into export markets, and 4) renewed consolidation talks. Our target price
remains unchanged at RM5.95.
Source: CIMB Research, MAA