This article first appeared in The Edge Financial Daily, on December 23, 2015.

Automotive sector
Maintain neutral: November 2015 total industry volume (TIV) continued to strengthen month-on-month (m-o-m) to 56,100 units (up 0.6% m-o-m) on the back of year-end sales campaigns.

Our 2015 TIV forecast of 655,000 units (down 2% year-on-year [y-o-y]) is intact, and we expect 2016 TIV to be softer at 645,000 units (down 2% y-o-y).

We maintain “neutral” on the sector (15 times calendar year 2016 price-earnings ratio — fair), and remain cautious about auto earnings due to the weaker ringgit. Berjaya Auto Bhd (BAuto) is our only “buy”.

November 2015 TIV of 56,100 units took 11 months of 2015 TIV to 597,000 (down 1% y-o-y), meeting 91% of our 2015 TIV estimate of 655,000 (down 2% y-o-y).

The m-o-m growth in terms of volume for most of the non-national marques (up 5% m-o-m; up 12% y-o-y), led by Honda (up 9% m-o-m; up 47% y-o-y) and Toyota (up 6% m-o-m; up 15% y-o-y), more than offset softer volume sales of the national marques (down 5% m-o-m; down 10% y-o-y). Proton lost 11% m-o-m to 7,200 units, its second-lowest monthly sales since 2008.

Competition between Toyota and Honda remains intense as they contest for the top spot among the non-national marques in 2015.

This has benefited car buyers in November and this month, as more discounts and freebies have been given out in order to gain market share.

Our 2015 TIV forecast of 655,000 units (down 2% y-o-y) remains. We expect TIV growth momentum to continue this month, ahead of price hikes in January 2016 and on aggressive year-end sales campaigns.

Thereafter, we expect the first quarter of 2016 to see an overhang in sales. Looking into 2016, we continue to expect a gradual shift in market share from the national marques (especially from Proton) to the non-nationals on better product offerings and competitive pricing (for example, Honda BR-V and Nissan Kicks). 

Moreover, the introduction of Perodua’s sedan model (depending on its price point) could be a threat to Proton’s sedan models (for example, Saga, Persona and Preve). Proton is wholly-owned by DRB-Hicom Bhd. 

In terms of profitability of auto players, we remain cautious about the ongoing ringgit weakness, which could escalate imported component costs.

BAuto is our only “buy” in the auto sector. The Mazda franchise is gaining traction in Malaysia and the Philippines. Its new, attractive launches coupled with competitive pricing will drive sales growth. 

However, the weak ringgit against the yen limits earnings growth, as all of its imported costs are denominated in yen. — Maybank IB Research, Dec 22