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 21 July 2010

Recom : Overweight
Motor (Maintained)

TIV Growth Momentum Continues

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 4.45 5.50 49.2 11.6 6.6 5.9 0.5 0.4 n.m 6.5 0.0 OP
MBM Dec 3.00 5.31 62.3 5.3 6.5 6.2 0.8 0.7 15.7 11.4 4.0 OP
Tan Chong Dec 4.40 6.16 72.0 26.8 11.3 8.9 1.8 1.5 9.5 16.1 2.6 OP
UMW Dec 6.25 7.50 64.4 7.2 11.3 10.6 1.8 1.6 9.0 15.3 3.8 OP
Sector 42.1 14.3 9.7 8.6
Sector Avg (ex-Proton) 47.3 6.8 10.9 9.6
^ Refer to FY11-12

Chart 1. TIV Growth

♦ TIV up 19.4% yoy in Jun 2010. Total industry volume (TIV) increased
by 19.4% yoy in Jun 2010 (vs. +15.6% yoy in May 2010) with 54,005 600,000 100.0

units sold (vs. 50,845 units in May 2010) which comes to show that the
80.0
500,000
60.0

hike in interest rates has not materially affected the TIV performance. TIV 400,000 40.0

for 1H10 of 301,077 already made up 51.2% of our full-year forecast.

20.0
300,000
0.0

200,000 -20.0

♦ TIV up 6.2% mom in Jun 2010. On a mom basis, TIV grew 6.2% (vs. 100,000
-40.0

-60.0

4.2% mom or 50.8k units in May 2010), as consumers continued to rush 0 -80.0

2009F

2010F
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

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

on the heels of a third hike in OPR to 2.75% (previously 2.50%) by Bank

Negara Malaysia (BNM) on 8 July 2010. We however believe the impact Chart 2. Market Share
would be minimal as interest rates are still much lower vis-à-vis more
than 8% five years ago. 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 Jun 2010 with market

30.0
%

shares of 30.1% and 27.1% respectively (vs. 29.5% and 27.8% in May).
20.0

Perodua’s MyVi and Viva still remained its best selling models with
10.0

increased sales of +13.3% and 14.9% respectively.

0.0

2009F

2010F
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

♦ Maintain 2010-12 TIV projections. We are keeping our 2010-12 TIV Proton Perodua Toyota Nissan Honda

projections. We expect TIV to grow 9.5%, 4.0% and 3.2% in 2010-2012, Source: MAA, RHBRI
following a 2% contraction in 2009.

♦ MAA revised forecast. We note that MAA has revised its FY10 forecast
to 570,000 units (previously 550,000) on a stronger-than-expected
19.8% growth in TIV YTD. The revised forecast would mean that MAA is
anticipating FY10 sales to surpass its all time high number of 552,316
units in FY05. This however is 3.01% lower from our forecast of 587,698
units.

♦ 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 it is now the best time to invest in local

motor stocks as the motor sector is currently into its second year of a
new 3-year cycle that has started in 2009 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 Joshua CY Ng
strengthening of the RM against US$ and yen which would help to reduce (603) 9280 2151
costs of imported materials. We reiterate our Overweight stance on the joshuang@rhb.com.my
sector.

Please read important disclosures at the end of this report. Page 1 of 6

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 Jun TIV Rises 19.4% YoY, 6.2% MoM

♦ TIV up 19.4% yoy in Jun 2010. Total industry volume (TIV) increased by 19.4% yoy in Jun 2010 (vs.
+15.6% yoy in May 2010) with 54,005 units sold (vs. 50,845 units in May 2010) which comes to show that the
hike in interest rates has not materially affected the TIV performance. TIV for 1H10 of 301,077 already made
up 51.2% of our full-year forecast.

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 19.4

6.2

Honda 34.3
Honda 9.4

Nissan 8.5
Nissan 3.9

Toyota Toyota 19.0

(3.0)

Perodua 23.2
Perodua 8.2

Proton 3.9
Proton 3.6

0 10,000 20,000 30,000 40,000 50,000 60,000 (10.0) 0.0 10.0 20.0 30.0 40.0

Jun-09 May-10 Jun-10 mom yoy

Source: MAA, RHBRI Source: MAA, RHBRI

♦ TIV up 6.2% mom in Jun 2010. On a mom basis, TIV grew 6.2% (vs. 4.2% mom or 50.8k units in May
2010), as consumers continued to rush to buy new cars ahead of the expected rise in interest rates on car
loans on the heels of a third hike in OPR to 2.75% (previously 2.50%) by Bank Negara Malaysia (BNM) on 8
July 2010. 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). We however believe the impact would be minimal as interest rates are still
much lower vis-à-vis more than 8% five years ago.

Page 2 of 6

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 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

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) 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 .8

Honda Honda 8 .1

Nissan
Nissan 15 .8

Toyota
Toyota 18 .7

Perodua
Perodua 2 3 .2

Proton
Proton 18 .0

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000

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 Jun 2010

Jun-09 May-10 Jun-10 Mom Chg Yoy Chg YTD 09 YTD 10 Yoy chg
(Nos.) (Nos.) (Nos.) (%) (%) (Nos.) (Nos.) (%)
Proton 14,065 14,110 14,615 3.6 3.9 67,921 80,126 18.0
Perodua 13,191 15,016 16,254 8.2 23.2 77,046 94,936 23.2
Toyota 6,601 8,091 7,852 (3.0) 19.0 37,485 44,513 18.7
Nissan 2,753 2,874 2,986 3.9 8.5 15,116 17,506 15.8
Honda 3,166 3,887 4,252 9.4 34.3 20,476 22,144 8.1
TIV 45,245 50,845 54,005 6.2 19.4 251,305 301,077 19.8
Passenger 41,150 46,229 48,926 5.8 18.9 228,420 271,873 19.0
Commercial 4,095 4,616 5,079 10.0 24.0 22,885 29,204 27.6

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 Jun 2010 with market shares of 30.1%
and 27.1% respectively (vs. 29.5% and 27.8% in May). Perodua’s MyVi and Viva still remained its best selling
models with increased sales of +13.3% and 14.9% respectively.

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

7.9 7.4
Honda 7.6 Honda 8.1
7.0

5.5 5.8
Nissan 5.7 Nissan 6.0
6.1

14.5 14.8
Toyota 15.9 Toyota
14.6 14.9

30.1 31.5
Perodua 29.5 Perodua
29.2 30.7

27.1 26.6
Proton 27.8 Proton 27.0
31.1

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

Jun-09 May-10 Jun-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
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 to increase localisation of Toyota models. UMW is expected to assemble Camry models at its Shah
Alam plant by FY12 as part of its RM170m assembly plant-upgrading programme. The Camry is currently
assembled in Thailand and is selling between RM144-174k as a CBU unit. Once locally assembled, we believe
this price will be brought down by at least 5% as import duty will no longer be imposed. The Group is also
looking at increasing the local content of its models as they have done with the Vios, which currently has 40%
local content. On another note, for the oil & gas division, we understand from the management that the
contracts for Naga Two and Naga Three will be secured soon. Management has also told us that they expect to
submit the new listing proposal to the Securities Commission (SC) by end of this year, given market conditions
appear to have stabilised, and on the expectation that oil & gas activities will begin to pick up again in 2011.
We reiterate our Outperform call on the stock with an unchanged SOP-derived fair value of RM7.50.

♦ Proton’s Waja replacement model in the pipeline. We understand that Proton will be launching a Waja
replacement model in 4Q10 in line with Proton’s commitment to introduce one new model and one facelift a
year. We believe the replacement model would be similar to the Mitsubishi Lancer and priced between RM80k-
100k. 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.

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♦ Tan Chong remains resilient. Nissan’s sales remain resilient with 2,986 units sold in Jun 10 (average sales
of 2.6k per month) attributed to its best-selling Livina, Sylphy and Latio on the back of sustained economic
growth. We reiterate our Outperform call on the stock with unchanged SOP fair value of RM6.16.

♦ Positive for MBM. Based on Perodua’s commitment to introduce one new model every two years, we can
expect a new model to come out from Perodua in FY11 as the last new model introduced was Perodua Alza in
FY09. We believe it will most likely be a MyVi replacement model as MyVi has already been in the market for
five years. We understand from the management that MBM will be taking a multibrand strategy in which the
company plans to distribute more models under its belt. Our indicative fair value is maintained at RM5.31
based on 11x FY11 PER. Reiterate Outperform.

♦ MAA revised forecast. We note that MAA has revised its FY10 forecast to 570,000 units (previously 550,000)
on a stronger-than-expected 19.8% growth in TIV YTD. The revised forecast would mean that MAA is
anticipating FY10 sales to surpass its all time high number of 552,316 units in FY05. This however is 3.01%
lower from our forecast of 587,698 units.

♦ Maintain overweight stance on the sector. We believe it is now the best time to invest in local motor
stocks as the motor sector is currently into its second year of a new 3-year cycle that has started in 2009 (see
Chart 11). 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.

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 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

* Pending revision by MAA
Source: MAA

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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
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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
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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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