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Friday, July 26, 2013

Auto Sector - Back in business ! OVERWEIGHT

Source: http://klse.i3investor.com/blogs/amresearch/33583.jsp

- The auto industry staged a much awaited rebound last month: June auto sales increased by 8% MoM to 53,631 units following two consecutive months of sequential contraction. This is in line with our channel checks recently which indicate that bookings have returned in mid-June to be followed by a very strong July.

- As a recap, April TIV fell by 9% while May saw a further 5% decline to 49,634 units. TIV in the prior two months were negatively impacted by market uncertainties regarding the direction of car prices as both competing coalition in the May 2013 general election pledged to reduce car prices. While on a YoY basis TIV is still down 5%, it has significantly narrowed versus the 15% YoY decline in May.

- New launches to sustain 2H recovery: On a YTD basis, TIV stood at 313,418 units (+4% YoY) or if annualised, at 626,836, accounting for 98% of our FY13 forecast of 637K units. New volume model launches in 3Q-4Q13 including the new Grand Livina (circa 1,000-1,500/month) and 3rd gen Toyota Vios (2,400-2,700/month), should provide a strong catalyst in the 2H. The all new Nissan Serena S-Hybrid (launched yesterday) meanwhile, should provide moderate volume increase with targeted 400-500/month sales.

- Perodua saw MoM contraction in June: Our check with management suggests that this was mainly due to a one week scheduled plant shut down. Proton’s launch of the Saga SV (on 15th June, priced from RM33,438) also probably had an impact on Perodua sales given the initial hype. On the contrary, Proton(+19%), Toyota (+23%) and Nissan (+10%) saw strong recovery. Nissan still retains its status as the 2nd largest non-national at 7.4% share (+2.1ppts YoY), behind Toyota (17.5% share, -0.8ppts YoY).

- 2Q13 results could be flattish sequentially: The upcoming 2Q13 results season looks to be quite flattish for the sector given that on QoQ basis, TIV fell by 1.2%, and most of the major listed players saw QoQ sales contraction. Nonetheless, this will be cushioned by the positive impact of an even stronger MYR in 1Q13 (3-months lag impact on earnings). We expect to see improvements for MBM’s 2Q13 results premised on:- (1) A 7% QoQ increase in Perodua sales; (2) A weaker JPY; (3) Improved production from both Proton (+7%) and Perodua (+14%), which is positive for its auto production division (accounts for c.10% of pretax) as this division was negatively impacted in the past four quarters from weak Proton sales.

- Look out for structural catalysts: Announcement of the National Auto Policy could turn out to be a key catalyst for sector growth – specifically, in paving the way for export earnings growth. We see this being realised via two key initiatives i.e. tax incentives and liberalisation, which creates a more competitive cost structure and attracts export volumes for local manufacturers.

- Maintain OVERWEIGHT on autos: TCM (BUY, FV: RM7.50/share) and MBM (BUY (FV: RM4.60/share) remain our top picks. We see both companies (Perodua via MBM) potentially benefitting from upcoming NAP initiatives for energy efficient vehicles.

Source: AmeSecurities

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