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July vehicle sales at all-time high, outlook still Neutral [26-08-2013]  
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The latest data from the Malaysian Automotive Association (MAA) showed car sales volume in July rebounded by 15% year-on-year to 68,431 units, but analysts are not expecting the sector to outperform.


Kenanga Research and RHB Research are maintaining their Neutral outlook on the sector, while Maybank KE Research is downgrading the sector from Overweight to Neutral on the spectre of a depreciating ringgit, price wars and a possible tightening of credit.


The total industry volume (TIV) in July hit an all-time-high with all the major marques achieving double-digit growth month-on-month – except Hyundai and Toyota.


Honda (6,038 units or 87% ) and Proton (at 16,629 units/54%) led growth, with Perodua registering the highest volume at 19,152 unit (21.5%). Toyota only grew 3.9% month-on-month but at 9,848 units sold in July, it was still ahead of Honda and Nissan (5,222 units/31.6%) in terms of volume.


On a year-to-date basis, the seven-month TIV growth widened to 6% year-on-year (from 4% in YTD June) to 381,919 units, which accounts for 60% of MAA’s 2013 forecast of 640,000 units for the whole year. 


Kenanga Research is of the opinion that August sales will continue to trend higher but thinks growth in the second half will be lower year-on-year.


“We are maintaining our Neutral rating on the sector and retaining our 2013 TIV forecast of 641,560 units (+2.2% year-on-year) despite the decent YTD (July) growth of 6% year-on-year as we anticipate a lower 2H13 year-on-year growth due to the normalisation of base effect,” it says.


RHB Research says 2013 has likely seen its peak sales month in July, but it still expects stronger auto sales in the second half.


“We are relieved that Bank Negara has officially refuted market rumours of a clampdown in auto financing. However, currency trends are going against the sector, with auto stocks likely to remain out of favour until portfolio flows stabilise,” it says.


RHB’s stock picks for the sector are DRB-HICOM and Tan Chong. Tan Chong is also Maybank KE Research’s stock pick – its only Buy call in the sector.


According to Maybank KE, sales from August onwards may slow down as consumers await possible goodies from the National Budget on Oct 25. It is also not discounting the possibility that Bank Negara may tighten hire purchase financing to rein in household debt despite the central bank saying it is not making any such move at present.


Another concern is the weakening ringgit vis-à-vis the dollar and yen.

“In addition, auto players are expected to engage in price wars in the second half for festive promotions and stock clearance. Together, these will compress profit margins,” it says.

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