Maintain Overweight: March 2013 total industry volume (TIV) rebounded strongly to a high of 57,622 units (+28% month-on-month (mo-m), +8% year-on-year [y-o-y]), underpinned by: i) strong deliveries in a full working month; (ii) a sizeable order backlog from new launches, and (iii) seasonally slow sales in February. At 25% of our unchanged forecast of 638,000 units for the full year (+2% y-o-y); TIV of 158,000 units (+14% y-o-y) for the first quarter of 2013 (1Q13) is on track to meet our expectations.
We reiterate â€œbuyâ€ on TAN CHONG MOTOR HOLDINGS BHD and MBM RESOURCES BHD. UMW HOLDINGS BHD remains a â€œholdâ€.
Non-national marques led volume growth in March with Toyota (+70% mo-m) in pole position, supported by its reliable, value-for-money Vios model.
Honda was a close second (+62% m-o-m), with sales underpinned by the newly launched CRV. Next came Nissan (+40% m-o-m), whose sales were powered by the recently launched Almera.
Sales of national marques also improved m-o-m, albeit at a slower rate than their non-national peers. PROTON HOLDINGS BHD and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) reported sales growth of 16% m-o-m and 11% m-o-m respectively.
Perodua and Nissan vehicle sales were within expectations, at 24% and 25% of our 2013 estimates of 194,000 and 58,000 units, respectively. However, Toyota and Volkswagen sales fell short of forecasts, making up only 20% and 15% of our 2013 unit sales estimates of 100,000 and 15,000 units, respectively. Our TIV forecasts are unchanged pending the announcement of the revised National Automotive Policy (NAP), likely after the 13th general election.
We expect vehicle sales to soften in April as the election and release of the revised NAP draw near, and consumers hold off purchases due to surrounding uncertainties.
However, lower component costs due to the weakening yen (-13% year-to-date, -18% y-o-y versus ringgit) could partly offset the potentially lower vehicle sales in the coming months.
The sectorâ€™s valuations are undemanding relative to its tremendous earnings growth potential, as evidenced by tremendous sales growth. MBM Resources remains a â€œbuyâ€, as its capacity growth in the alloy wheel and commercial vehicle segments offers potential for significant earnings upgrades going forward.
We retain our â€œholdâ€ call on UMW, which currently trades at fair value, in our view. Investors may eventually gain from the final valuations of the listing of its core oil and gas business in the second half of 2013. Our target price for UMW is raised to RM13.26 (from RM12.30), pegged to 14 times (+0.5 standard deviation above mean) FY14 price-earnings ratio (13 times previously), to reflect its O&G upside potential. â€” Maybank IB Research, April 19