Auto industry hit by virus outbreak

Industry experiences a soft start to the year as TIV declines by 12% in January, dragged by weaker sales


CAR sales could moderate in the coming months no thanks to the soft economic climate amid the Covid-19 outbreak and political change in Malaysia.

As it is, the industry experienced a soft start to the year as total industry volume (TIV) declined by 12% year-on-year (YoY) to 42,623 units in January, dragged by weaker sales across the board, except for Proton Holdings Bhd and Toyota which saw higher sales.

Affin Hwang Capital analyst Brian Yeoh, in his auto and autoparts’ report yesterday, stated that the economic slowdown would impact market sentiment and non-national cars would undergo tougher times ahead.

“The 12% decrease YoY and 21% month-on-month (MoM) decline (in January) was expected, attributed to a shorter working month, in conjunction with the Chinese New Year holidays, leading us to cut our 2020 TIV assumption to 583,000 units (-3.5% YoY).

“The research firm’s previous forecast was at 590,000 units. We maintain our ‘Neutral’ rating on the auto sector,” he said.

MIDF research analyst Hafriz Hezry reckons the Covid-19 outbreak has not impacted the domestic auto sector so far, although he is aware auto companies like Proton and Sime Darby Bhd have direct supply and demand exposure to the Chinese automotive value chain.

“We are cautious of the knock-on impact of the outbreak towards the Malaysian economy. As it is, consensus GDP growth forecasts have already been revised downwards earlier this year after a surprise underperformance in the fourth quarter of 2019.

“For now, our financial year 2020 forward (FY20F) TIV is maintained at a flattish 0.2% YoY growth. Among the key players, Proton and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) are expected to launch their B-segment SUVs this year, while Honda’s City and Jazz as well as Nissan’s Almera are due for replacement,” he added.

Elsewhere, Moody’s Investor Service also slashed its global vehicle sales forecast due to the Covid-19 outbreak impact on demand and automotive supply chains. It expects global auto sales to slump 2.5% in 2020 instead of a 0.9% drop forecast earlier.

Moody’s cited the Covid-19 epidemic as well as stricter emissions regulations for the overall decline in vehicle sales from 90.3 million to 88 million.

Proton was the star performer for January with its car sales volume rising by 24% YoY to 8,500 units, spurred by higher demand for the updated 2019 models, namely the Saga, Iriz, Persona and Exora.

“The stronger January performance saw its first month of the year’s market share rise to 19.9%, its highest since March 2014,” Yeoh said.

Proton announced its sales momentum remained strong in February despite the shrinking TIV, whereby the Proton X70 CKD version had garnered over 7,000 bookings since its launch last month.

“We were surprised that Perodua car sales volume declined to 17,500 units — a decrease of 13% YoY and 5% MoM — on weaker demand over its model line-up: Passenger vehicles (-9% YoY), MPV (-69% YoY) and SUV (-12% YoY) accordingly.

“Despite the weaker performance, Perodua remains the envy of its peers as it continues to retain its leadership in the industry, with a 41% market share in January this year,” Yeoh said. “Both national makers’ combined market share soared to an eight-year high of 60.9%.”

Japanese marques saw a slump in January sales volume with Honda sales falling 19.4% YoY, Nissan down 45.9% YoY and Mazda down 31.5% YoY (with a current backlog of estimated 1,300 units), except for Toyota that saw a 16% YoY increase on low base effect.

“We believe the down-trading trend is gaining pace in the domestic automotive market, where sales of cheaper national brands with refreshed line-ups have continuously outpaced the pricier Japanese cars.

“Luxury brands are also facing difficult times, having to store their excess vehicles in rented yard space due to the soft economic climate,” he added.

Evidently, Mercedes-Benz sales plunged to merely 645 units, a 39% decrease YoY in January, the Affin Hwang report noted. “We are not able to ascertain the performance for BMW/MINI as BMW Malaysia Sdn Bhd announced it would only disclose its sales volume on a quarterly basis moving forward,” Yeoh said.

Affin Hwang’s sector top pick is MBM Resources Bhd for its appealing valuation.

MBM achieved higher core profit of RM192.9 million for its 2019 financial year, a 10.4% increase YoY, attributed by higher Perodua sales and stronger dealership margins on the back of improved product mix.

MBM has also closed down loss-making OMI Alloy (M) Sdn Bhd in June 2019 and does not expect further material losses from the subsidiary. MBM is also in talks with potential buyers of the business/plant/equipment and machinery, and is optimistic to conclude the exercise this year, potentially for cash value of RM38.3 million (9.8sen/share) if based on one time price-to-book valuation or more.

MBM remains top picks for all analysts under their coverage, according to Bloomberg, with nine buys as of yesterday.

MIDF Research said at just six times FY20F earnings coupled with an attractive 7% dividend yield, MBM is a cheap proxy to Perodua’s volume expansion and the spill-over on its parts manufacturing and Perodua dealership units.

Key catalyst for MBM, according to MIDF and Hong Leong Investment Bank Bhd (HLIB), is the launch of Perodua’s new B-segment SUV in the second half of this year.

Another top pick stock among analysts is DRB-Hicom Bhd, which has seven ‘Buy’ recommendations, according to Bloomberg.

The conglomerate swung to the black with a net profit of RM358.97 million for the nine months ended Dec 31, 2019, from a net loss of RM5 million in the previous year’s corresponding period.

Rise in sales of Proton cars enabled it to post a 273% YoY jump in earnings to RM272.68 million in the fourth quarter ended Dec 31, 2019, as its automotive segment experienced a strong year.

HLIB remains positive on Proton’s outlook as it continues to enjoy strong sales growth with an attractive model line-up. The carmaker intends to broaden its export volume in 2020.