PP 7767/09/2010(025354)

Malaysia
17
RHBAugust 2010
Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Sector Upda te
MARKET DATELINE 17 August 2010

Recom : Overweight
Motor (Maintained)

TIV Growth Maintained

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
UMW Dec 6.31 7.50 64.4 7.2 11.4 10.7 1.8 1.6 7.6 16.1 3.7 OP
Proton^ Mar 4.60 5.50 49.2 11.6 6.8 6.1 0.5 0.4 n.m 6.5 0.0 OP
MBM Dec 3.21 5.31 62.3 5.3 7.0 6.7 0.8 0.7 16.8 11.9 3.7 OP
Tan Chong Dec 5.00 6.16 72.0 16.2 12.8 11.0 2.1 1.8 10.8 17.2 2.3 OP
APM Dec 4.80 5.21 18.6 10.8 11.2 10.1 1.3 1.3 5.9 12.6 2.7 OP
Sector 58.0 10.4 10.1 9.2
Sector Avg (ex-Proton) 61.4 10.0 11.3 10.3
^ Refer to FY11-12

Chart 1. TIV Growth

♦ TIV was up 2.9% yoy in July 2010, with 53,482 units being sold. The
flattish growth was mainly due to the high base effect of July 2009’s TIV; 100.0 12.00

10.00

but in general the sustained volume serves as a testament of the strong

80.0
8.00
60.0
6.00

automotive sector growth Malaysia has enjoyed since the beginning of 40.0
4.00

GDP Growth %
TIV Growth %
20.0

2010. YTD TIV of 354,559 achieved 60.3% of our full-year forecasts of

2.00

0.0 0.00

2009F

2010F
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
587,698 and 62.2% of MAA’s forecast of 570,000.
x -2.00
-20.0
-4.00
-40.0
-6.00

♦
-60.0

TIV down 1% mom in July 2010 (vs. 6.2% mom or 54k units in June
-8.00

-80.0 -10.00

2010). The slight fall is unsurprising and mirrors the moderate TIV growth TIV Growth Yoy % (LHS) GDP % (RHS)

outlook the Malaysian Automotive Association (MAA) has for 2H10. We

are generally in line with the outlook and have effected the slower growth Chart 2. Market Share

in our full-year 2010 TIV forecasts. However we still expect overall 2010 60.0

TIV numbers to be better than 2009 numbers. 50.0

♦ Perodua and Proton remain market leaders. The national marques 40.0

continued their stronghold in the market accounting for 26.2% (Proton) 30.0
%

and 30.9% (Perodua) respectively (vs. 27.1% and 30.1% in June). 20.0

Perodua’s TIV continued to grow on the back of MyVi sales and continued 10.0

to overtake Proton’s market share. Given their dominance in the <RM50k 0.0

2009F

2010F
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

passenger vehicle segment we expect Perodua’s and Proton’s market Proton Perodua Toyota Nissan Honda

leadership to continue going forth.

Source: MAA, RHBRI
♦ Maintain 2010-12 TIV projections. We keep our 2010-12 TIV
projections for now and expect TIV to grow 9.5%, 4.0% and 3.2% in
2010-2012, following a 2% contraction in 2009.

♦ 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 still maintain that it is now the best time to invest
in local motor stocks, given that it is currently into its second year of a
new 3-year cycle that started in 2009. Our 2010 earnings growth is
expected to continue gaining traction on the back of: 1) sustained
industry TIV growth; and 2) strengthened RM against US$ and Yen that
would help to reduce costs of imported materials; and 3) positive Yap Huey Chiang
consumer sentiment with the greater stability of the economy. We (603) 9280 2239
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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 17 August 2010

July TIV Up 2.9% YoY, But Down 1% MoM

♦ TIV up 2.9% yoy in July 2010. Total industry volume (TIV) increased by 2.9% yoy in July 2010 (vs.
+19.4% yoy in June 2010) with 53,482 units being sold (vs. 51,967 units in July 2009). The flattish growth
was mainly due to the high base effect of July 2009’s TIV number, but in general the sustained volume serves
as a testament of the strong automotive sector growth Malaysia has enjoyed since the beginning of 2010. YTD
TIV of 354,559 achieved 60.3% of our full-year forecasts of 587,698 and 62.2% of MAA’s forecast of 570,000.

Chart 3: TIV And Yoy Growth

60,000 60.0

50.0
50,000
40.0

40,000 30.0

20.0
Units

%
30,000
10.0

20,000 0.0

-10.0
10,000
-20.0

0 -30.0
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08

Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09

Jan-10
Oct-09
Nov-09

Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Dec-08

Dec-09

TIV (LHS) Yoy Growth (RHS)

Source: MAA, RHBRI

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

TIV 2.9
TIV
(1.0)

Honda 24.8
Honda 7.9

Nissan 1.5
Nissan
(1.9)

Toyota 4.8
Toyota
(2.5)

Perodua Perodua 5.7

1.8

Proton (11.2)
Proton
(4.0)

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

Jul-09 Jun-10 Jul-10 mom yoy

Source: MAA, RHBRI Source: MAA, RHBRI

TIV down 1% mom in July 2010 (vs. 6.2% mom or 54k units in June 2010). The slight fall is unsurprising and
mirrors the moderate TIV growth outlook the Malaysian Automotive Association (MAA) has for 2H10. In their 1H10
market review, MAA mentioned that 1) concerns of global economic recovery; 2) slower GDP growth in 2H10; and
3) hikes in hire purchase interest rates (due to the increase in OPR rates), could be main contributors to slower
buying trends in 2H10. We are generally in line with the outlook and have effected the slower growth in our full-
year 2010 TIV of 587,220. However we still expect overall 2010 TIV numbers to be better than 2009 numbers.

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 17 August 2010

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
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-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 16 .9

Honda Honda 10 .7

Nissan
Nissan 13 .5

Toyota
Toyota 16 .5

Perodua
Perodua 20 .3

Proton
Proton 12.5
0 50,000 100,00 150,00 200,00 250,00 300,00 350,00 400,00
0 0 0
Units 0 0 0 0
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 Jun 2010

May-10 Jun-10 July-10 Mom Chg Yoy Chg YTD 09 YTD 10 Yoy chg
(Nos.) (Nos.) (Nos.) (%) (%) (Nos.) (Nos.) (%)
Proton 14,110 14,615 14,032 (4.0) (11.2) 83,730 94,158 12.5
Perodua 15,016 16,254 16,540 1.8 5.7 92,693 111,476 20.3
Toyota 8,091 7,852 7,652 (2.5) 4.8 44,788 52,165 16.5
Nissan 2,874 2,986 2,930 (1.9) 1.5 18,002 20,436 13.5
Honda 3,887 4,252 4,588 7.9 24.8 24,151 26,732 10.7
TIV 50,845 54,005 53,482 (1.0) 2.9 303,272 354,559 16.9
Passenger 46,229 48,926 48,143 (1.6) 2.1 275,585 320,016 16.1
Commercial 4,616 5,079 5,339 5.1 11.2 27,687 34,543 24.8

Source: MAA

♦ Perodua and Proton remain market leaders. The national marques continued their stronghold in the
market accounting for 26.2% (Proton) and 30.9% (Perodua) respectively (vs. 27.1% and 30.1% in June).
Perodua’s TIV continued to overtake Proton’s market share and grew mainly on the back of MyVi (+1.8%)
sales. Given their dominance in the <RM50k passenger vehicle segment we expect Perodua and Proton market
leadership to continue going forth.

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 17 August 2010

Chart 9: Market Share Jun 09, May 10 & Jun 10 Chart 10: Market Share YTD 09 vs. Y TD 10

8 .6 52
Honda 7.9 Honda 56
7.1

5 .5
40
Nissan 5.5 Nissan
5.6 42

14 .3
103
Toyota 14.5 Toyota
14.1 103

3 0 .9
220
Perodua 30.1 Perodua
30.1 214

2 6 .2
186
Proton 27.1 Proton
30.4 192

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 0 50 100 150 200 250

Jul-09 Jun-10 Jul-10 YTD 09 YTD 10

Source: MAA, RHBRI Source: MAA, RHBRI

Forecasts and Assumptions

♦ Maintain 2010-12 TIV projections. We maintain our 2010-12 TIV projections for now and expect TIV to
grow 9.5%, 4.0% and 3.2% 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 148,031 162,114 174,837 182,346 9.5 7.8 4.3
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 10.3
TIV 536,905 587,698 611,265 630,953 9.5 4.0 3.2
Passenger 486,342 536,392 558,417 584,398 10.3 4.1 4.7
Commercial 50,563 51,306 52,848 46,555 1.5 3.0 -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’s auto division to hold, but oil and gas division potentially to be weak. No change on the
automotive front where UMW looks to assemble its Camry models at its Shah Alam plant by FY12 as part of its
RM170m assembly plant-upgrading programme and increase the local content of its models (as performed with
the Vios (currently has 40% local content)). However, we believe forward numbers for the oil & gas division,
could be weak, as they have yet to secure contracts for their rigs Naga Two and Naga Three, while their pipes’
division could see prospective losses akin to that of 1QFY10. The forward weakness could be a deterrent to
their plans to list their oil and gas division and could lead to an improvement only in 2011. We maintain our
earnings estimates at this juncture pending their 2QFY10 results. We have an Outperform call on the stock
with a SOP-derived fair value of RM7.50.

♦ Proton possibly to face headwinds. Recall in our previous report we mentioned that the next two steps
Proton could opt for were the 1) consolidation of its two plants into Tanjung Malim; and/or 2) the securing of
contract manufacturing from customers, namely Volkswagon, Peugeot Citroen and Fiat as potential customers,
given the poor utilisation of their plants. However, the news of Volkswagon tying up with DRB-Hicom to
produce three new models in Pekan (published in the Business Times on 14 August 2010), could prove to be a
deterrent to our 2nd option. In light of the latest development, we maintain our earnings estimates at this
juncture, pending the release of their 2QFY10 results (expected to be released on 22 August 2010) and further

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 17 August 2010

clarification with management. We have an Outperform call on the stock with a fair value of RM5.50 based on
stripped-down book value.

♦ Positive on Tan Chong and MBM. No changes to our outlook for both Tan Chong and Perodua, as both their
sales remain resilient. We highlight Perodua’s commitment to introduce one new model every two year, will be
the driver of prospective sales. We have an Outperform call on both stocks with a SOP fair value of RM6.16 for
Tan Chong and a RM5.31 based on 11x FY11 PER for MBM.

♦ Maintain Overweight stance on the sector. We still maintain that it is now the best time to invest in local
motor stocks, given that it is currently into its second year of a new 3-year cycle that started in 2009. Our
2010 earnings growth is expected to continue gaining traction on the back of: 1) sustained industry TIV
growth; and 2) strengthened RM against US$ and Yen that would help to reduce costs of imported materials;
and 3) positive consumer sentiment with the greater stability of the economy. We reiterate our Overweight
stance on the sector.

Chart 11: TIV vs. YoY Growth

700000 25.0

600000 20.0

15.0
500000
10.0
400000
5.0
300000
0.0
200000
-5.0

100000 -10.0

0 -15.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f

TIV growth yoy %

Source: MAA, RHBRI

Table 4: MAA's Forecasts for 2010-14

2010 2011 2012 2013 2014

Passenger 516,500 526,400 536,400 547,400 560,000

Commercial 53,500 54,600 55,600 56,600 58,000

TIV 570,000 581,000 592,000 604,000 618,000

Growth (%) +6.2 +2.0 +2.0 +2.0 +2.3

Source: MAA (1st half market review)

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 17 August 2010
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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.

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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