auto sector

Sector update 23 April 2009

Equity Research PP11072/03/2010 (023549)

Needs a good NAP. Proton, TCM now Sells.

Total industry volume (TIV) still sluggish. Mar ‘09 and 1Q09 TIV contracted 5% and 9% YoY as expected, reflecting the adverse impact from the economic slowdown and tighter financing environment. We expect weaker performance ahead, with 2009’s TIV to contract 15-20% YoY. We recommend investors to Sell Proton and TCM.

Mar ‘09 TIV grew 21% MoM on low Feb base… Mar 09’s TIV of 44,205 units (+20.5% MoM) was in line, with both the commercial and passenger segments growing by 24.2% and 20.2% MoM respectively. All major marques enjoyed higher MoM sales with non-nationals Honda and Toyota achieving stronger growth (+33-34% MoM) compared to national models Proton and Perodua (+9-17% MoM).

YoY performance still down. Mar ‘09 TIV fell 4.8% YoY and 1Q09 TIV fell 9.3%. Market share-wise, the Honda and Perodua marques grew 3.4-ppt YoY and 1.6-ppt YoY in Jan-Mar ‘09 at the expense of Toyota (-3.9-ppt YoY) and Proton (-1.7-ppt YoY).

2009 is set to be a tough year. We expect TIV to fall by 15-20% YoY to 438,000-465,000 units, due to fewer new model launches, tougher economic conditions and tighter financing environment. We understand that loan applications and approvals have dropped significantly particularly for Proton cars. A further dampener is the 85-100 bps hike in Hire Purchase (HP) rates on non-national cars in Apr ‘09.

Downgrade Proton and TCM to Sell. The industry expects a new National Automotive Policy (NAP) to be revealed soon but we are doubtful whether it will address Proton’s long term competitiveness. We downgrade Proton to Sell (from Trading Buy) following the 68% share price appreciation since our Jan ‘09 upgrade as well as anticipation of a poor 4Q09 result, to be announced next month. We also downgrade TCM to Sell (from Hold) as the share price has breached our TP.

Auto sector: Comparative valuations Company Rec Price TP EPS (sen) PER (x) Div Yield (%) P/NTA (x)

(RM) (RM) 09F 10F 09F 10F 09F 10F

MBM FV 2.35 2.40 31.9 48.1 7.4 4.9 5.5 6.0 0.6 Tan Chong Sell 1.41 1.05 17.8 17.9 7.9 7.9 3.5 3.5 0.6 UMW Hold 5.50 5.70 34.2 42.2 16.1 13.0 4.3 5.4 1.5 Proton* Sell 3.00 2.50 32.5 29.6 9.2 10.2 3.3 3.3 0.3

Source: Maybank-IB, * calendarised

Autos (Underweight) Wong Chew Hann, CA [email protected] (603) 2297 8688

Snapshot of auto sales data

Mar 09 (unit)

% chg MoM

% chg YoY

YTD (unit)

% chg YoY

TIV 44,205 20.5 -4.8 118,681 -9.2

Passenger 39,989 20.2 8.2 107,593 2.2

Commercial 4,216 24.2 -55.6 11,088 -56.6

National 24,468 13.6 -7.4 67,751 -9.4

Non-national 19,737 30.3 -1.4 50,930 -9.0

Marque

Proton 10,176 9.2 -22.0 29,367 -15.0

Perodua 14,292 17.0 6.9 38,384 -4.6

Toyota 7,113 32.5 -23.7 17,313 -28.4

Honda 2,445 2.3 3.9 7,119 4.0

Nissan 3,904 33.7 55.2 10,638 46.1

Mkt share Mar 09 (%)

ppt chg MoM

ppt chg YoY

YTD (unit)

% chg YoY

Passenger 90.5 -0.2 10.9 90.7 10.2

Commercial 9.5 0.2 -10.9 9.3 -10.2

National 57.1 -3.4 -1.5 57.1 -0.1

Non-national 42.9 3.4 1.5 42.9 0.1

Marque

Proton 23.0 -2.4 -5.1 24.7 -1.7

Perodua 32.3 -1.0 3.5 32.3 1.6

Toyota 16.1 1.5 -4.0 14.6 -3.9

Honda 5.5 -1.0 0.5 6.0 0.8

Nissan 8.8 0.9 3.4 9.0 3.4

Source: MAA

Auto

23 April 2009 of 4

Total Industry Volume

20,000

30,000

40,000

50,000

60,000

Mar‐07 Jul‐07 Nov‐07 Mar‐08 Jul‐08 Nov‐08 Mar‐09

Passenger Vehicle Commercial Vehicle

Source: MAA, Maybank-IB

USD-RM Movement

3.46 3.453.41

3.31

3.203.27

3.44 3.45

3.723.64

3.00

3.10

3.20

3.30

3.40

3.50

3.60

3.70

3.80

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

22-A

pr


JPY-RM Movement

2.932.80

2.95 2.95

3.213.10

3.27

3.833.70

3.65

2.60

2.80

3.00

3.20

3.40

3.60

3.80

4.00

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

22-A

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Auto

23 April 2009 of 4

Auto Sector Summary (Quarterly) Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08PROFIT AND LOSS BALANCE SHEET Revenue (RM’m) Gross Cash (RM’m) - MBM Resources 271.9 267.8 307.1 314.9 260.9 - MBM Resources 110.8 119.9 147.6 140.7 124.9

- Tan Chong Motors 441.8 759.6 783.8 1002.5 650.0 - Tan Chong Motors 81.9 115.8 100.1 115.9 76.2

- UMW Holdings 2689.8 2985.1 3568.2 3326.2 2918.4 - UMW Holdings 1553.4 1347.2 1648.9 1573.4 1499.7

- Proton 1454.9 1724.6 1708.8 1838.5 1537.3 - Proton 985.0 1226.0 1386.4 1434.6 1172.8

EBIT (RM’m) Gross Debt (RM’m) - MBM Resources 15.9 21.6 19.1 23.0 10.1 - MBM Resources 45.0 37.4 35.7 32.0 36.9



- Proton 9.0 189.2 57.6 52.7 -58.7 - Proton 485.9 244.5 242.0 255.6 295.5

Pretax profit (RM’m) Net Cash (RM’m) - MBM Resources 30.1 51.5 36.7 42.6 19.5 - MBM Resources 65.8 82.5 111.9 108.7 88.0

- Tan Chong Motors 34.0 67.1 84.0 115.7 40.4 - Tan Chong Motors -372.2 -315.5 -287.0 -245.6 -493.2


- Proton 11.0 193.1 58.7 56.6 -60.9 - Proton 499.1 981.6 1144.4 1179.0 877.2

Net profit (RM’m) Shareholders fund (RM’m) - MBM Resources 22.6 42.8 25.7 32.2 16.7 - MBM Resources 759.8 798.1 825.8 834.6 851.3



- Proton 10.3 236.4 52.0 43.8 -74.7 - Proton 5198.6 5443.0 5480.8 5520.2 5387.9

PROFIT RATIO EBIT margins (%) NTA / Share (RM) - MBM Resources 5.8 8.1 6.2 7.3 3.9 - MBM Resources 3.05 3.20 3.31 3.34 3.41



- Proton 0.6 11.0 3.4 2.9 -3.8 - Proton 9.01 9.36 9.36 9.39 9.10

Pretax margins (%) Inventories - MBM Resources 11.1 19.2 12.0 13.5 7.5 - MBM Resources 101.2 117.2 108.8 98.8 146.8 - Tan Chong Motors 7.7 8.8 10.7 11.5 6.2 - Tan Chong Motors 583.3 579.2 603.1 627.4 854.4 - UMW Holdings 11.7 9.8 9.9 10.6 9.2 - UMW Holdings 1048.9 1317.6 1385.0 1358.0 1464.0 - Proton 0.8 11.2 3.4 3.1 -4.0 - Proton 1282.1 1090.3 1162.6 1215.5 1391.3 Net profit margins (%) Trade Receivables - MBM Resources 8.3 16.0 8.4 10.2 6.4 - MBM Resources 114.1 104.3 104.5 98.9 91.2 - Tan Chong Motors 7.2 7.1 8.7 9.5 4.3 - Tan Chong Motors 307.7 310.9 310.4 111.2 280.2 - UMW Holdings 5.3 4.7 4.3 4.6 4.0 - UMW Holdings 657.8 782.7 734.1 753.0 802.7 - Proton 0.7 13.7 3.0 2.4 -4.9 - Proton 884.6 1022.2 835.4 739.1 776.2 CASH FLOW CASH FLOW Operating (RM’m) Financing (RM’m) - MBM Resources 4.2 3.4 18.5 29.7 -21.2 - MBM Resources -24.9 -15.3 -5.1 -28.4 -0.9

- Tan Chong Motors -33.0 89.1 65.5 67.6 -180.9 - Tan Chong Motors 64.5 -22.9 -68.9 -50.5 200.7

- UMW Holdings 264.0 -77.6 292.4 275.8 56.8 - UMW Holdings -146.1 -57.4 190.7 -71.9 10.2

- Proton 267.9 1028.8 -769.7 164.6 -158.4 - Proton 112.9 101.0 -97.1 48.6 72.4

Investing (RM’m) - MBM Resources -0.8 23.9 17.3 -9.6 4.3 - Tan Chong Motors -65.4 -20.4 -12.3 -0.6 -60.3 - UMW Holdings -24.3 -84.8 -192.8 -268.5 -174.9 - Proton -131.0 -427.2 325.7 -124.0 -160.9

Source: Companies, Maybank-IB

Auto

23 April 2009 of 4

Definition of Ratings

Maybank Investment Bank Research uses the following rating system: STRONG BUY Total return is expected to exceed 20% in the next 12 months; high conviction call

BUY Total return is expected to be above 10% in the next 12 months

HOLD Total return is expected to be between above 0% to 10% in the next 12 months

FULLY VALUED Total return is expected to be between -10% and 0% in the next 12 months

SELL Total return is expected to be below -10% in the next 12 months

TRADING BUY Total return is expected to be between 10-20% in the next 6 months arising from positive newsflow e.g. mergers and acquisition, corporate restructuring, and potential of obtaining new projects. However, the upside may or may not be sustainable

Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax

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auto sector

Economy & Finance