Maintain Neutral: The macroeconomic environment remains favourable in 2013 helped by the forecast 6.1% rise in consumer spending, 5.4% GDP growth, low borrowing costs and strong pipeline of attractive newmodels. However, industry growth is inhibited by the high absolute prices of cars in general and high household debt ratios. Sustained weakness of the yen will benefit TAN CHONG MOTOR HOLDINGS BHD, MBM RESOURCES BHD and UMW HOLDINGS BHD .(MBM and UMW via associate Perusahaan Otomobil Kedua Sdn Bhd [Perodua]). We are â€œneutralâ€ on the sector.
Malaysian Automotive Association (MAA) data suggest industry sales are progressing as expected with year-to-date sales up 17.8% year-onyear(y-o-y) to 100,042 units. The sales performance and anecdotal evidence suggest a robust undertone for consumer spending, especially in the mid to high end of the market. The pipeline for new model launches remains healthy â€” we count 24 launches of new and facelift vehicle variants in the first quarter of 2013. Our total industry volume forecast for 2013 is 637,000 units (up 1.5% y-o-y).
The dearth of all-new models from the national manufacturers and increasingly competitive pricing strategies adopted by some non-national players mean that PROTON HOLDINGS BHD and Peroduaâ€™s market shares will continue to be under pressure.
In addition, while the increasing affluence of national car owners results in many trading up to more expensive non-national alternatives, the lower end of the market continues to be squeezed by stricter hurdles to qualify for financing.
The yen has depreciated 13.7% against the ringgit since the start of the year. Beneficiaries of the weaker yen include Tan Chong, MBM and UMW. UMW Toyota uses the greenback for component purchases and APM AUTOMOTIVE HOLDINGS BHD is unlikely to be able to hold on to its foreign exchange gains. We have raised our fair value estimates for Tan Chong, MBM and UMW following revisions to our US dollar/yen forecasts.
We remain wary of a potential sales blip in the coming months that could be sparked off by the impending general election. The risk is that potential buyers could adopt a wait and see attitude that would disrupt the recent positive sales trends.
While the strategic thrust of the new National Automotive Policy has been well-signalled to the market, its stance on the automotive duty structure going forward is unclear. â€” RHB Research, April 15