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 June 2010

Recom : Overweight
Motor (Maintained)

May TIV Rises 15.6% YoY, 4.2% MoM

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 4.69 5.50 39.0 7.5 10.4 7.4 0.5 0.5 n.m 4.7 0.0 OP
MBM Dec 2.95 5.04 62.3 5.3 6.4 6.1 0.7 0.7 15.5 11.4 4.1 OP
Tan Chong Dec 4.43 5.26 72.0 16.2 11.4 9.8 1.8 1.6 9.6 16.1 2.6 OP
UMW Dec 6.26 7.52 64.4 7.2 11.3 10.6 1.8 1.6 9.0 15.3 3.8 OP
Sector 42.1 14.3 10.1 8.9
Sector Avg (ex-Proton) 47.3 6.8 17.1 16.0
^ Refer to FY11-12

Chart 1. TIV Growth

♦ TIV up 15.6% yoy in May 2010. Total industry volume (TIV) increased
by 15.6% yoy in May 2010 (vs. +17.1% yoy in Apr 2010) with 50,845 600,000 100.0

80.0

units sold (vs. 48,812 units in Apr 2010) thanks to: (1) Sustained pent-up 500,000
60.0

demand from 2009; and (2) Increased production by key car

400,000 40.0

20.0
300,000

makers/assemblers, driven by order backlog. 0.0

200,000 -20.0

♦
-40.0

TIV up 4.2% mom in May 2010. On a mom basis, TIV grew 4.2% (vs.
100,000
-60.0

0 -80.0

-13.2% mom or 48.8k units in Apr 2010), we believe, as consumers

2009F

2010F
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
rushed to buy new cars ahead of the expected rise in interest rates on car TIV (LHS) Growth yoy % (RHS)

loans on the heels of the hike in OPR to 2.5% (previously 2.25%) by Bank
Chart 2. Market Share
Negara Malaysia (BNM) on 13 May 2010.

♦
60.0

Perodua and Proton remained market leaders. Given their 50.0

dominance in the <RM50k passenger vehicle segment, Perodua and 40.0

Proton maintained their market leadership in May 2010 with market 30.0
%

shares of 29.5% and 27.8% respectively (vs. 32.6% and 23.1% in Apr). 20.0

♦
10.0

Maintain 2010-12 TIV projections. We are keeping our 2010-12 TIV 0.0

2009F

2010F
1999

2000

2001

2002

2003

2004

2005

2006

2007

projections. We expect TIV to grow 8.9%, 2.8% and 2.3% in 2010-2012, 2008

following a 2% contraction in 2009.

Proton Perodua Toyota Nissan Honda

Source: MAA, RHBRI

♦ 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

growth will continue to gain traction on the back of: 1) strong industry’s
TIV growth ahead; and 2) sustained strengthening of the RM against US$
Joshua CY Ng
and Yen which would help to reduce costs of imported materials. We
(603) 9280 2151
reiterate our Overweight stance on the sector.
joshuang@rhb.com.my

Please read important disclosures at the end of this report.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 1 of 5
available for download from www.rhbinvest.com
 May TIV Rises 15.6% YoY, 4.2% MoM

♦ TIV up 15.6% yoy in May 2010. Total industry volume (TIV) increased by 15.6% yoy in May 2010 (vs.
+17.1% yoy in Apr 2010) with 50,845 units sold (vs. 48,812 units in Apr 2010) thanks to: (1) Sustained pent-
up demand from 2009; and (2) Increased production by key car makers/assemblers, driven by order backlog.
All top marques posted improved numbers with Toyota and Honda registering the strongest growth as
consumers’ preference continued to move towards non-national cars. Toyota, Honda, Nissan, Perodua and
Proton registered 20.8%, 19.7%, 7.9%, 13.8% and 12.5% growth respectively.

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
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
TIV (LHS) Yoy Growth (RHS)

Source: MAA, RHBRI

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

TIV TIV 15.6

4.2

Honda 19.7
(2.3) Honda

Nissan 7.9
(4.2) Nissan

Toyota Toyota 20.8

8.5

Perodua 13.8
(5.6) Perodua

Proton 12.5
Proton 25.2

0 10,000 20,000 30,000 40,000 50,000 60,000 (10.0) (5.0) 0.0 5.0 10.0 15.0 20.0 25.0 30.0

May-09 Apr-10 May-10 mom yoy

Source: MAA, RHBRI Source: MAA, RHBRI

♦ TIV up 4.2% mom in May 2010. On a mom basis, TIV grew 4.2% (vs. -13.2% mom or 48.8k units in Apr
2010), we believe, as consumers rushed to buy new cars ahead of the expected rise in interest rates on car
loans on the heels of the hike in OPR to 2.5% (previously 2.25%) by Bank Negara Malaysia (BNM) on 13 May
2010. Interest rates on car loans did go up subsequently. Since early-Jun 2010, the interest rate for new
national cars has been raised to 3.85-4.10% (from 3.75-4.0% since Mar 2010) while the interest rate for new
non-national cars has been raised to 3.5-3.85% (from 3.25-3.5% since Mar 2010). RHBRI’s economics team
expects the OPR to be raised again in Sep 2010. Nevertheless, we believe the small rise in interest rates on car
loans will not materially affect the TIV performance in coming months.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 2 of 5
available for download from www.rhbinvest.com
 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
Jan-08

Jan-09

Jan-10
Mar-08

May-08

Jul-08

Sep-08

Nov-08

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Mar-10

May-10
TIV (LHS) Mom Growth (RHS)

Source: MAA, RHBRI

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

TIV TIV 19.9

Honda
Honda 3.4

Nissan
Nissan 17.4

Toyota
Toyota 18.7

Perodua
Perodua 23.2
Proton
Proton 21.6
0 50,000 100,000 150,000 200,000 250,000 300,000
Units 0.0 5.0 10.0 15.0 20.0 25.0

YTD 09 YTD 10 yoy

Source: MAA, RHBRI Source: MAA, RHBRI

Table 2: Motor Sales For May 2010

May-09 Apr-10 May-10 Mom Chg Yoy Chg YTD 09 YTD 10 Yoy chg
(Nos.) (Nos.) (Nos.) (%) (%) (Nos.) (Nos.) (%)
Proton 12,542 11,269 14,110 25.2 12.5 53,856 65,511 21.6
Perodua 13,194 15,915 15,016 (5.6) 13.8 63,855 78,682 23.2
Toyota 6,696 7,456 8,091 8.5 20.8 30,884 36,661 18.7
Nissan 2,664 2,999 2,874 (4.2) 7.9 12,363 14,520 17.4
Honda 3,247 3,980 3,887 (2.3) 19.7 17,310 17,892 3.4
TIV 43,985 48,812 50,845 4.2 15.6 206,060 247,072 19.9
Passenger 40,159 43,661 46,229 5.9 15.1 187,270 222,947 19.1
Commercial 3,826 5,151 4,616 (10.4) 20.6 18,790 24,125 28.4

Source: MAA

♦ Perodua and Proton remained market leaders. Given their dominance in the <RM50k passenger vehicle
segment, Perodua and Proton maintained their market leadership in May 2010 with market shares of 29.5%
and 27.8% respectively (vs. 32.6% and 23.1% in Apr). Proton’s 4.7%-point gain in market share was mainly
driven by increased sales of its three most popular models, i.e. Persona (+44.8%), Exora (+38.0%) and Saga
(+15.4%).

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 3 of 5
available for download from www.rhbinvest.com
 Chart 9: Market Share May 09, Apr 10 & May 10 Chart 10: Market Share YTD 09 vs. Y TD 10

7.6 7.2
Honda 8.2 Honda 8.4
7.4
5.7 5.9
Nissan 6.1 Nissan
6.1 6.0

15.9 14.8
Toyota 15.3 Toyota
15.2 15.0

29.5 31.8
Perodua 32.6 Perodua
30.0 31.0

27.8 26.5
Proton 23.1 Proton 26.1
28.5

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

May-09 Apr-10 May-10 YTD 09 YTD 10

Source: MAA, RHBRI Source: MAA, RHBRI

Forecasts and Assumptions

♦ Maintain 2010-12 TIV projections. We are keeping our 2010-12 TIV projections. We expect TIV to grow
8.9%, 2.8% and 2.3% in 2010-2012, following a 2% contraction 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 31.5 5.3 32.6
Honda 38,783 40,000 44,000 48,517 3.1 10.0 10.2
TIV 536,905 584,476 601,082 614,608 8.9 2.8 2.3
Passenger 486,342 533,133 548,164 568,009 9.6 2.8 3.6
Commercial 50,563 51,343 52,918 46,599 1.5 3.1 -11.9
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 in talks to charter rigs. We expect demand for premium cars (i.e. Lexus) to continue to rise in tandem
with the stronger purchasing power stemming the economic recovery. Separately, for the O&G division, UMW
is in talks to charter its two jack-up rigs – Naga Two and Naga Three. Their first jack up rig, Naga One is
currently chartered at a rate of approximately US$145k per day. The average daily rig charge is currently
between US$120k-140k. We expect the revenue contribution from both rigs to boost earnings contributions
from O&G going forward. We reiterate our Outperform call on the stock with unchanged SOP-derived fair
value of RM7.52.

♦ Proton in need for foreign partnership. Although talks with VW has once again been called off, we believe
that Proton still needs to develop a foreign strategic alliance to develop new models and bolster their exports
to ensure the Group’s long-term survival. The next possible steps that we could be expecting from Proton are:
1) Consolidating two plants into Tanjung Malim; and/or 2) Securing contract manufacturing to optimise plants
utilisation that will further improve profitability via better cost control and economies of scale. Fair value is
maintained at RM5.50 based on stripped-down book value. We reiterate our Outperform call on the stock.

♦ Tan Chong remains resilient. Nissan’s sales remain resilient with 2,874 units sold in May 10 (average sales
of 2.6k per month) attributed to its best-selling Livina, Sylphy and Latio on the back of sustained economic
growth. On another note, TCM is in talks to convert its 47-acre Segambut assembly plant into a property
development venture. The assembly plant operations is expected to be moved to its newly-acquired assembly
facility in Shah Alam by 2013. We reiterate our Outperform call on the stock with unchanged SOP fair value of
RM5.26.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 4 of 5
available for download from www.rhbinvest.com
♦ Positive for MBM. We expect MBM’s earnings to remain positive in 3Q due to: 1) spillover of orders from new
models launched in FY09 i.e. Alza and Volvo S40 2.0; and 2) contributions from its expanded VW and Hino
dealership and 3S centres which will come into full effect by 4QFY10. Our indicative fair value is maintained at
RM5.04 based on 11x FY10 PER. Reiterate Outperform.

♦ Maintain overweight stance on the sector. We believe the 2010 automotive sector earnings growth will
continue to gain traction on the back of: 1) strong industry’s TIV growth ahead; and 2) sustained
strengthening of the RM against US$ and Yen which would help to reduce costs of imported materials. 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

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable
law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and
may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This
report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything
stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or
its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and
objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors
independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a
particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates,
employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as
providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of
the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or
equity securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective
directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking
or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

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.

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.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for
the actions of third parties in this respect.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 5 of 5
available for download from www.rhbinvest.com