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.

Mitsubishi EVO Cylinder Head Gasket

Talking about Mitsubishi EVO series engine, its predecessor should be the 4G63 VR4 type of engine, but for the VR4 model, their cylinder head gasket material originally is just using graphite, as the engine need to coupe with the more powerful turbo pressure demand, the EVO series had modified the gasket material to metal type.

The requirement for the cylinder head gasket not just stop at this point, after it become the metal material, user starting to demanding for the thickness of the gasket which it go to 1.5mm to 2.0mm range, that's not all, there are also user demanding for a more bigger diameter on the cylinder head gasket piston hole. The original size of the gasket diameter is about 86.2mm but due to oversize of the piston modification, gasket diameter of 87mm become their new request.

Toyota 1G Valve Cover Gasket

Previously, I'm always think that to differentiate Toyota 1G engine rocker cover gasket is just ask if it is 12 valves engine or 24 valves engine, whereby 12 valves engine of 1G-EU will use 1 piece of gasket but 24 valves 1G-GEU or 1G-GTE or 1G-GZEU will use 2 pieces of gasket.

Recently, just found there are another 24 valves engine 1G-FE which it only use 1 piece of rocker cover gasket, and for those which using 2 pieces of gasket, there are 2 types of it as well whereby one of them uses 2 pieces of same gasket and another uses 2 pieces of which this 2 pieces are diffrence from each other.

Toyota 3S-GTE Engine Gasket

Toyota S series of engine can be consider one of their most popular engine among other, from the earliest 1S series to their last version of 5S (Don't know if it got 6S onwards or not).

Among those S series engine, 3S category is most interesting in my view, as the powerful Turbo engine mostly showcase in the 3S-GTE series.

The 3S-GTE include those Celica and MR-2 Turbo which having model such as ST165, SW20, ST185 and ST205.

Kelisa Engine Mounting

When talking about engine mounting, there are more problem heard from Perodua Kelisa, Kenari type, which there are a lot of speculative explanation every way.

First they stated this Perodua Kelisa and Kenari type of engine is a 3 cylinders engine which if difference from those common 4 cylinders engine, and the design of 3 cylinders engine tense to vibrate more than those 4 cylinders design.

Another thing is this engine only have 3 engine mounting to support on it which also difference from those using 4 engine mounting.

And one of those commonly talk about is the rear engine mounting (as shown on photo) which is the biggest among 3 mounting, need to use the O.E.M parts only, which the cost of this O.E.M parts is always far costly than those normal after market parts.

There are also some mention about installation prosedure, is it change one mounting at one time or take out the whole engine and change 3 together? And some mention after installing all the mounting, which it should not be thighten fully, the engine need to be start and let it vibrate to a perfect position, than only the mounting to be tighten fully.

So anyone can give a better comment on this?