Auto Sector Report

Auto Sector
We maintain our NEUTRAL rating on the auto sector on the back of: (1) rising earnings uncertainties due to parts supply shortages from Japan; (2) a slowing TIV growth; (3) potential price discounting towards 3Q11-4Q11 as players rush out sales to meet yearly commitments to principals once parts supply recovers.

The government yesterday announced a hike in electricity tariff and gas price, effective 1 June 2011. Electricity tariff has been increased by an average 8%, while gas price is increased by an average 17% for industrial users. We see this as a marginal negative for auto players. We estimate electricity to account for circa 1%-2% of Proton’s operating cost and 0.4%-0.5% for TCM and UMW. APM is mainly impacted by the gas tariff increase as gas cost accounts for close to 3% of APM’s spring plant production cost. We estimate spring plants to account for close to half of APM’s production capacity.

An 8% electricity rate hike and 17% gas tariff hike is estimated to impact Proton’s earnings by 3%, TCM by 0.3%, UMW by 0.4% and APM by 1.2%. Note that these estimates are based on a full-year impact of the tariff increases. As the tariff increase is only effective 1 June, the impact on FY11F earnings should be half the aforementioned amounts. On the bright side, we believe these cost increases can be easily passed through or absorbed via manufacturing efficiency.

APM as an example has a cost-pass through mechanism via a periodic price review with key clients. The price review is done every six months while compensation is received every 12 months, retrospectively – this is usually booked in the 3Q-4Q. As such, we see a minimal impact from the cost hike to APM’s earnings. We believe Proton too should be able to pass through the increase in cost to consumers.

Assuming the price of a Proton Exora is raised by 3%, (from an average RM80,000 to RM82,400), this would only result in monthly instalments increasing from RM1,101/month to RM1,106/month i.e. a net RM5/month increase (assuming a nine-year loan tenure and 5% hire purchase rate), which is marginal, in our opinion. We leave our ratings unchanged on APM (BUY, FV: RM6.60/share), Proton (BUY, FV: RM4.30/share), UMW (HOLD, FV: RM6.50/share) and TCM (HOLD, FV: RM4.30/share).

Source: Company / AmResearch

Flywheel Oil Seal with Metal Casing

The flywheel oil seal (Oil seal that attached on the Gear Box) with metal casing is not so common as those without metal casing, and when flywheel oil seal leaking is detected, the labour cost on changing this oil seal may far more higher than the cost of oil seal itself as it need to dismantle the gear box for this oil seal replacement.

Flywheel oil seal that have metal casing can be found on Mitsubishi Canter on engine model of 4D3series and 4DRseries, it also commonly use on Nissan engine model of VQseries, QD32 and ZD30.

Daihatsu Copen JB-JL and JB-DET engine which known as Kancil L5 in Malaysia also have such a design of oil seal. And Kia Carnival or Naza Ria have such design of flywheel oil seal as well.

SUBARU EJ20 CYLINDER HEAD GASKET

Among the Japanese passenger car model, Subaru model is the one that I'm less get involve in it, it is may be due to less popularity is Malaysia, but still, racing fans can't ressist the Subaru power.

One of my latest stock is the Subaru EJ204/5/6/8 Cylinder Head Gasket which the material is metal. The Subaru model that uses this type of gasket include Legacy 2.0, Impreza 2.0 Turbo and Forester 2.0 Turbo.