Sector Update 03 January 2020 Automotive NEUTRAL National Marques Overtaking on the Fast Lane ↔ By Wan Mustaqim Bin Wan Ab Aziz l
[email protected] We maintain our NEUTRAL rating on the AUTOMOTIVE sector. The MIER consumer sentiment index scored 84.0 points (-9.0ppt QoQ, -23.5ppt YoY) in 3QCY19 which is below the optimistic threshold (>100pts) due to normalisation of consumer confidence post-tax holiday and weak macroeconomic outlook. Reflecting this, we are seeing car sales trending in favour of value-for-money national marques, as evident from their 11MCY19 TIV market share of 57%. Non-national marques on the other hand, are focusing on higher-margin lower-volume models (catering to higher purchasing power consumers). Notable developments in Automotive industry in 2019/2020 include: (i) national marques surpassing non-national marques in terms of market share, (ii) Proton has surpassed Honda as no.2 trailing behind Perodua, (iii) increasing number of new model launches, (iv) better incentives under National Automotive Policy 2020 (tentatively on 1QCY20), and (v) another OPR rate cut by 25bps (to 2.75%) in 2020, which should have minimal positive impact on vehicles loans. No changes to our 2019 TIV target of 600,000 units (+0.2%), and we introduce 2020 TIV target of 612,000 units (+2%) matching MAA’s target factoring the extra boost from national marques (Proton and Perodua). Our sector top-pick is BAUTO (OP; TP: RM2.65) for its defensible niche SUV market and attractive, steady dividend yield of 7.3%. National marques affirming leading market position . As of 11MCY19, the national marques (57%) continued to stay above non-national marques (43%) in terms of market share, marking a year not seen since 2013, owing to the outstanding sales from Perodua, especially after the introduction of its all-new Perodua Myvi and supported by the all-new Perodua Aruz (27,389 units delivered).