PP 7767/09/2010(025354)

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Sector Upda te
MARKET DATELINE 23 April 2010

Recom : Overweight
Motor (Maintained)

March TIV Hit 53-Month High

Table 1: Motor Sector Valuations

Fair EPS growth PER P/NTA P/CF ROE GDY
Price
FYE Value (%) (x) (x) (x) (%) (%) Rec
(RM/s) (RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Proton^ Mar 4.80 5.48 39.0 7.5 7.4 6.8 0.5 0.5 n.m 4.8 8.4 OP
MBM Dec 2.87 5.04 62.4 5.3 6.3 5.9 0.7 0.6 15.1 11.9 4.2 OP
Tan Chong Dec 4.59 5.26 72.0 3.1 11.8 11.4 1.9 1.2 10.0 14.2 2.5 OP
UMW Dec 6.45 7.52 52.3 2.5 12.6 12.3 2.0 1.8 9.0 15.8 3.6 OP
Sector 44.1 7.0 10.1 9.4
Sector Avg (ex-Proton) 47.3 6.8 17.1 16.0
^ Refer to FY11-12

♦ March TIV hit a 53-month high since Oct 05. Malaysia’s automotive Chart 1. TIV Growth
industry TIV increased by 25.0% yoy (vs. +8.7% yoy in Feb 2010) with 600,000 100.0

56,139 units sold (vs. 40,654 units in Feb 2010). Note that March’s TIV is 500,000
80.0

the 53-month high since Oct 05, suggesting that the sector is poised to
60.0

400,000 40.0

register a stronger growth in 2010. We believe the stronger growth is 300,000

20.0

0.0

largely due to the low base factor arising from the sharp contraction 200,000 -20.0

-40.0

beginning Oct 08 as well as pent-up demand stemming from car buyers 100,000
-60.0

postponing big-ticket purchases in 2009.

0 -80.0

2009F

2010F
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
♦ Yoy growth for key marques. Meanwhile, all top marques posted TIV (LHS) Growth yoy % (RHS)

higher yoy increase, with Proton registering stronger yoy growth. This is
Chart 2. Market Share
not a surprise, given the low base factor arising from the contraction in
Mar 09. Note that Mar 09 industry TIV contraction of 4.8% was driven by 60.0

yoy decline in Proton (-21.8% yoy). Note that yoy growth increased 50.0

significantly for Perodua (29.4% vs. 6.5% in Feb 2010), Proton (34.9% 40.0

vs. 10.1%), Toyota (16.2% vs. 14.3%), Nissan (29.0% vs. 3%) and 30.0
%

Honda (3.5% vs. –27.8%).

20.0

♦
10.0

Slight improvement in Proton and Perodua. We note that Proton and 0.0

Perodua which dominated the <RM50k passenger vehicles segment

2009F

2010F
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

continued to show a slight improvement with Mar market share of 27.2% Proton Perodua Toyota Nissan Honda

and 32.4% respectively (vs. 27.1% and 32.0% in Feb). We believe that Source: MAA, RHBRI
although the market is improving, consumers are still cautious and
preference continues to be for the more economical range. Nevertheless,
we expect demand for premium cars to strengthen as economic recovery
gains more traction.
♦ Maintained 2010-12 TIV projections. We are keeping our 2010-12 TIV
projections of 8.5% and 2.5% respectively unchanged for now.
♦ Risks. The key risks to our projections would be: 1) Inflationary pressure
amid economic recovery; and 2) Weakening of RM against US$ and Yen.
♦ Investment case. We believe the 2010 automotive sector earnings Wong Chin Wai
growth will gain traction on the back of: 1) strong industry TIV growth (603) 9280 2158
ahead; and 2) continuous strengthening of the RM against US$ and Yen wong.chin.wai@rhb.com.my
which would help to reduce the costs of imported materials. We believe
there is potential upside to our 2010-11 TIV projections given stronger- Yap Huey Chiang
than-expected car sales arising from higher business spending as well as (603) 9280 2171
new model launches. We reiterate our Overweight stance on the sector. yap.huey.chiang@rhb.com.my

Please read important disclosures at the end of this report.

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Total Industry Volume (TIV)

Units and growth:

♦ March TIV hit a 53-month high since Oct 05. Malaysia’s automotive industry TIV increased by 25.0% yoy
(vs. +8.7% yoy in Feb 2010) with 56,139 units sold (vs. 40,654 units in Feb 2010). Note that March’s TIV is the
53-month high since Oct 05, suggesting that the sector is poised to register a stronger growth in 2010. We
believe the stronger growth is largely due to the low base factor arising from the sharp contraction beginning
Oct 08 as well as pent-up demand stemming from car buyers postponing big-ticket purchases in 2009.

Chart 3: TIV And Yoy Growth

60,000 60.0

50.0
50,000 40.0

30.0
40,000
20.0

10.0
Units

%
30,000
0.0

-10.0
20,000
-20.0

10,000 -30.0

-40.0

0 -50.0
Jul-06

Jul-07

Jul-08

Jul-09
Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
Mar-06

Mar-07

Mar-08

Mar-09

Mar-10
May-06

Nov-06

May-07

Nov-07

May-08

Nov-08

May-09

Nov-09
Sep-06

Sep-07

Sep-08

Sep-09

TIV (LHS) Yoy Growth (RHS)

Source: MAA, RHBRI

♦ Yoy growth for key marques. Meanwhile, all top marques posted higher yoy increase, with Proton registering
stronger yoy growth. This is not a surprise, given the low base factor arising from the contraction in Mar 09.
Note that Mar 09 industry TIV contraction of 4.8% was driven by yoy decline in Proton (-21.8% yoy). Note that
yoy growth increased significantly for Perodua (29.4% vs. 6.5% in Feb 2010), Proton (34.9% vs. 10.1%),
Toyota (16.2% vs. 14.3%), Nissan (29.0% vs. 3%) and Honda (3.5% vs. –27.8%).

r Chart 4: TIV Mom & Yoy (units) Chart 5: TIV Mom & Yoy Growth

TIV TIV 25.0

38.1

Honda Honda 3.5

91.7

Nissan 29.0
Nissan 27.6

Toyota Toyota 16.2

34.7

Perodua Perodua 29.4

42.1

Proton 34.9
Proton 32.5

0 10,000 20,000 30,000 40,000 50,000 60,000 0.0 20.0 40.0 60.0 80.0 100.0

Mar-09 Jan-10 Feb-10 Mar-10 mom yoy

Source: MAA, RHBRI

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♦ Stronger mom sales. Accordingly, mom sales increased by 38.1% (vs. –19.7% mom or 40.6k units in
Feb 2010) due to shorter working month in Feb 10 as well as stronger mom growth for Proton (+32.5%)
and Perodua (+42.1%).

Chart 6: TIV & MoM Growth

60,000 50.0

40.0
50,000
30.0
40,000
20.0
Units

30,000 10.0

%
0.0
20,000
-10.0
10,000
-20.0

0 -30.0
Jul-08

Jul-09
Jun-08

Jun-09
Feb-08

Oct-08

Feb-09

Oct-09

Feb-10
Jan-08

Jan-09

Jan-10
Mar-08

Mar-09

Mar-10
May-08

May-09
Aug-08

Nov-08

Aug-09

Nov-09
Apr-08

Apr-09
Sep-08

Sep-09
Dec-08

Dec-09
TIV (LHS ) Mom G rowth (RHS )

Source: MAA, RHBRI

r Chart 7: TIV YTD 09 vs YTD 10 Chart 8: TIV YTD 10 Yoy Growth

TIV TIV 2 2 .4

Honda (5 .8 ) Ho n d a

Nissa n
Nis s a n 2 0 .5

To y o ta
T o y o ta 2 2 .0
c
P erodua
P e ro dua 2 4 .4
P roton
P r o to n 2 9 .5
0 20,000 40,000 60,000 80,000 100,00 120,00 140,00 160,00
Units 0 0 0 0 (1 0 .0 ) (5 .0 ) 0 .0 5 .0 1 0 .0 1 5 .0 2 0 .0 2 5 .0 3 0 .0 3 5 .0

YTD 09 YTD 10 yoy

Source: MAA, RHBRI Source: MAA, RHBRI

Table 2: Motor Sales For Mar 2010

Mar-09 Jan-10 Feb-10 Mar-10 Mom Chg Yoy Chg YTD 09 YTD 10 Yoy chg
(Nos.) (Nos.) (Nos.) (Nos.) (%) (%) (Nos.) (Nos.) (%)
Proton 10,838 14,485 11,031 14,616 32.5 34.9 30,989 40,132 29.5
Perodua 14,298 16,240 13,015 18,496 42.1 29.4 38,390 47,751 24.4
Toyota 7,113 6,710 6,136 8,268 34.7 16.2 17,313 21,114 22.0
Nissan 2,459 2,990 2,486 3,171 27.6 29.0 7,173 8,647 20.5
Honda 3,904 3,876 2,108 4,041 91.7 3.5 10,638 10,025 (5.8)
TIV 44,896 50,622 40,654 56,139 38.1 25.0 120,389 147,415 22.4
Passenger 40,680 45,973 36,551 50,533 38.3 24.2 109,301 133,057 21.7
Commercial 4,216 4,649 4,103 5,606 36.6 33.0 11,088 14,358 29.5
Source: MAA

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Market Share:

♦ We note that Proton and Perodua, which dominated the <RM50k passenger vehicles segment, continued to show
a slight improvement with Mar market share of 27.2% and 32.4% respectively (vs. 27.1% and 32.0% in Feb).
We believe that although the market is improving, consumers are still cautious and preference continues to be
for the more economical range. Nevertheless, we expect demand for premium cars to strengthen as the
economic recovery gains more traction.

Chart 9: Market Share Mar 09, Jan10, Feb 10 & Mar 10 Chart 10: Market Share YTD 09 vs. Y TD 10

7.2
Ho nda 5.2
7.7 6.8
8.7
Honda 8.8
5.6
6. 1
Nissan 5.9
5.5

14.7 5.9
T oyota 13.3
15.1 Nissa n 6.0
15.8

32.9
32.0
Pero dua 32.1
31. 8 14.3
Toy ota
Pr oton
26.0
27.1 14.4
28.6
24.1

0.0 5.0 10 .0 15.0 2 0.0 25.0 3 0.0 35.0 32.4

Pe rodua
Mar-10 Feb-10 J an-10 Mar-09
31.9

27.2
Proton 25.7

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

YTD 09 YTD 10

Source: MAA, RHBRI Source: MAA, RHBRI

♦ Maintained 2010-12 TIV projections. We are keeping our 2010-12 TIV projections unchanged for now.
Hence, we expect TIV to turn around to a stronger growth of 8.5% in 2010 and 2.5% for now in 2011, following
a contraction of 2% in 2009.

Table 3:Motor Sales Forecast By Key Marques

2009a 2010 2011 2012 2010 2011 2012
(Nos.) (Nos.) (Nos.) (Nos.) (% yoy) (% yoy) (% yoy)
Proton 148,031 157,940 162,854 163,926 6.7 3.1 0.7
Perodua 166,736 195,090 196,803 202,252 17.0 0.9 2.8
Toyota 81,785 89,692 91,286 97,290 9.7 1.8 6.6
Nissan 31,493 41,410 43,599 57,813 27.3 5.3 32.6
Honda 38,783 35,000 37,000 43,348 -9.8 5.7 17.2
TIV 536,905 580,599 596,332 605,956 8.5 2.5 2.2
Passenger 486,342 528,351 542,381 559,127 8.6 2.7 3.1
Commercial 50,563 51,352 52,967 45,983 1.6 3.1 -13.2
Source: RHBRI

Risk

♦ Risks. The key risks to our projection would be: 1) Inflationary pressure amid economic recovery; and 2)
Weakening of RM against US $and Yen.

Valuations and Recommendation

♦ UMW – Benefitting from increased demand for premium cars. In the same vein, we expect demand for
premium cars (i.e. Lexus) to rise in tandem with the stronger purchasing power stemming form the economic
recovery. Already, Lexus Malaysia has revised its 2010 unit sales projection by 33% given rising affluence and
pent-up demand on luxury cars. UMW is also expanding its oil and gas market to the Middle East and further
developing its onshore drilling business. With the improvement in demand for drill rigs in 2010, we are
anticipating a brighter outlook for UMW’s oil and gas division for FY10. We recently upgraded our
recommendation on the stock from market perform to Outperform due to upwards earning revision which
increased our SOP-derived fair value to RM7.52 (previously RM6.71).

♦ Positive outlook for Proton. Proton has launched their much-anticipated enhanced Persona (known as
Persona Elegance), which will be replacing the current Persona. Persona has been a popular model in the market
besides Saga and Exora and currently holds 35% local market share for cars in its class. Although the OTR price
for Persona Elegance is slightly higher than Persona (ranging from 1-5%), we are expecting unit sales to

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 increase by 25% this year for this model. Fair value is maintained at RM5.48 based on stripped down book
value. We reiterate our Outperform call on the stock.

♦ Tan Chong riding on higher volume loading ahead. According to industry sources, the company’s 1Q10 unit
sales reached its all-time high since 3Q08 of around 880 units, mainly driven by stronger sales of Grand Livina,
Sylphy and Navara. In addition, TCM is expected to introduce A and B segment models by end-2011. A and B
segments represent the <1,000cc and 1,000-1,500cc category respectively. Currently, TCM does not represent
both these segments. In the past month, TCM has entered into two separate distribution agreements with Nissan
for the sole and exclusive rights to distribute Nissan’s CBU vehicles in Cambodia and Laos. This is expected to
take place in 2Q10 with an initial sales volume of 200 units each. We see this as a positive step taken by TCM to
tap into the growing ASEAN market. We reiterate our Outperform call on the stock with unchanged SOP fair
value of RM5.26.

♦ MBM still rated Outperform. Earlier, MBM signed two new distributorship agreements with Autovox and Heico
for the sole and exclusive sales rights to distribute ABT Sportsline and Heico Sportiv in Malaysia. This new
agreement with Autovox will help to open more doors for MBM for future business relationships with the
Volkswagen Group while the agreement with Heico will further strengthen the business relationship between
MBM and Volvo. Our indicative fair value is maintained at RM5.04 based on 11x EPS. Reiterate Outperform.

♦ Maintain overweight stance on the sector. We believe the 2010 automotive sector earnings growth will gain
traction on the back of: 1) strong industry’s TIV growth ahead and 2) continuous strengthening of the RM
against US$ and Yen which would help to reduce costs of imported materials. We believe there is potential
upside to our 2010-11 TIV projections given stronger-than-expected car sales arising from higher business
spending as well as new model launches. We reiterate our Overweight stance on the sector.

Table 4: MAA's Forecasts for 2010-14

2010 2011 2012 2013 2014

Passenger 498,300 514,500 530,500 546,000 562,400

Commercial 51,700 52,000 53,000 54,000 55,600

TIV 550,000 566,500 583,500 600,000 618,000

Growth (%) +2.4 +3.0 +3.0 +2.8 +3.0

Source: MAA

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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