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Auto sector

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Needs a good NAP. Proton, TCM now …

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.

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  • 1. Equity Research PP11072/03/2010 (023549) Sector update 23 April 2009 Needs a good NAP. Proton, TCM now Autos (Underweight) Sells. Total industry volume (TIV) still sluggish. Mar ‘09 and 1Q09 TIV Wong Chew Hann, CA contracted 5% and 9% YoY as expected, reflecting the adverse impact wchewh@maybank-ib.com from the economic slowdown and tighter financing environment. We (603) 2297 8688 expect weaker performance ahead, with 2009’s TIV to contract 15-20% Snapshot of auto sales data YoY. We recommend investors to Sell Proton and TCM. Mar ‘09 TIV grew 21% MoM on low Feb base… Mar 09’s TIV of Mar 09 % chg % chg YTD % chg (unit) MoM YoY (unit) YoY 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. TIV 44,205 20.5 -4.8 118,681 -9.2 All major marques enjoyed higher MoM sales with non-nationals Passenger 39,989 20.2 8.2 107,593 2.2 Honda and Toyota achieving stronger growth (+33-34% MoM) Commercial 4,216 24.2 -55.6 11,088 -56.6 compared to national models Proton and Perodua (+9-17% MoM). National 24,468 13.6 -7.4 67,751 -9.4 YoY performance still down. Mar ‘09 TIV fell 4.8% YoY and 1Q09 TIV Non-national 19,737 30.3 -1.4 50,930 -9.0 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 (- Marque 3.9-ppt YoY) and Proton (-1.7-ppt YoY). Proton 10,176 9.2 -22.0 29,367 -15.0 Perodua 14,292 17.0 6.9 38,384 -4.6 2009 is set to be a tough year. We expect TIV to fall by 15-20% YoY Toyota 7,113 32.5 -23.7 17,313 -28.4 to 438,000-465,000 units, due to fewer new model launches, tougher Honda 2,445 2.3 3.9 7,119 4.0 economic conditions and tighter financing environment. We understand Nissan 3,904 33.7 55.2 10,638 46.1 that loan applications and approvals have dropped significantly particularly for Proton cars. A further dampener is the 85-100 bps hike Mkt share Mar 09 ppt chg ppt chg YTD % chg in Hire Purchase (HP) rates on non-national cars in Apr ‘09. (%) MoM YoY (unit) YoY Passenger 90.5 -0.2 10.9 90.7 10.2 Downgrade Proton and TCM to Sell. The industry expects a new Commercial 9.5 0.2 -10.9 9.3 -10.2 National Automotive Policy (NAP) to be revealed soon but we are doubtful whether it will address Proton’s long term competitiveness. We National 57.1 -3.4 -1.5 57.1 -0.1 downgrade Proton to Sell (from Trading Buy) following the 68% share Non-national 42.9 3.4 1.5 42.9 0.1 price appreciation since our Jan ‘09 upgrade as well as anticipation of a poor 4Q09 result, to be announced next month. We also downgrade Marque TCM to Sell (from Hold) as the share price has breached our TP. 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 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
  • 2. Auto Total Industry Volume 60,000  Passenger Vehicle Commercial Vehicle 50,000  40,000  30,000  20,000  Mar‐07 Jul‐07 Nov‐07 Mar‐08 Jul‐08 Nov‐08 Mar‐09 Source: MAA, Maybank-IB USD-RM Movement 3.80 3.72 3.64 3.70 3.60 3.46 3.45 3.45 3.44 3.50 3.41 3.40 3.31 3.27 3.30 3.20 3.20 3.10 3.00 22-Apr 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 Source: MAA, Maybank-IB JPY-RM Movement 4.00 3.83 3.70 3.80 3.65 3.60 3.40 3.27 3.21 3.10 3.20 2.95 2.95 2.93 3.00 2.80 2.80 2.60 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 22-Apr Source: MAA, Maybank-IB 23 April 2009 Page 2 of 4
  • 3. Auto Auto Sector Summary (Quarterly) Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 PROFIT AND LOSS BALANCE SHEET Revenue (RM’m) Gross Cash (RM’m) - MBM Resources - MBM Resources 271.9 267.8 307.1 314.9 260.9 110.8 119.9 147.6 140.7 124.9 - Tan Chong Motors - Tan Chong Motors 441.8 759.6 783.8 1002.5 650.0 81.9 115.8 100.1 115.9 76.2 - UMW Holdings - UMW Holdings 2689.8 2985.1 3568.2 3326.2 2918.4 1553.4 1347.2 1648.9 1573.4 1499.7 - Proton - Proton 1454.9 1724.6 1708.8 1838.5 1537.3 985.0 1226.0 1386.4 1434.6 1172.8 EBIT (RM’m) Gross Debt (RM’m) - MBM Resources - MBM Resources 15.9 21.6 19.1 23.0 10.1 45.0 37.4 35.7 32.0 36.9 - Tan Chong Motors - Tan Chong Motors 37.1 70.1 86.3 117.7 43.02 454.1 431.3 387.0 361.6 569.4 - UMW Holdings - UMW Holdings 268.2 237.8 306.8 295.4 224.7 295.2 341.3 432.4 467.4 571.0 - Proton - Proton 9.0 189.2 57.6 52.7 -58.7 485.9 244.5 242.0 255.6 295.5 Pretax profit (RM’m) Net Cash (RM’m) - MBM Resources - MBM Resources 30.1 51.5 36.7 42.6 19.5 65.8 82.5 111.9 108.7 88.0 - Tan Chong Motors - Tan Chong Motors 34.0 67.1 84.0 115.7 40.4 -372.2 -315.5 -287.0 -245.6 -493.2 - UMW Holdings - UMW Holdings 315.6 292.9 355.0 353.8 269.9 1258.2 1005.9 1216.5 1105.9 928.7 - Proton - Proton 11.0 193.1 58.7 56.6 -60.9 499.1 981.6 1144.4 1179.0 877.2 Net profit (RM’m) Shareholders fund (RM’m) - MBM Resources - MBM Resources 22.6 42.8 25.7 32.2 16.7 759.8 798.1 825.8 834.6 851.3 - Tan Chong Motors - Tan Chong Motors 31.9 54.1 68.1 95.4 28.2 1232.6 1286.8 1330.1 1399.7 1421.5 - UMW Holdings - UMW Holdings 143.0 141.8 151.7 152.7 116.1 3130.1 3279.7 3339.4 3410.2 3522.9 - Proton - Proton 10.3 236.4 52.0 43.8 -74.7 5198.6 5443.0 5480.8 5520.2 5387.9 PROFIT RATIO EBIT margins (%) NTA / Share (RM) - MBM Resources - MBM Resources 5.8 8.1 6.2 7.3 3.9 3.05 3.20 3.31 3.34 3.41 - Tan Chong Motors - Tan Chong Motors 8.4 9.2 11.0 11.7 6.6 1.85 1.93 1.99 2.10 2.15 - UMW Holdings - UMW Holdings 10.0 8.0 8.6 8.9 7.7 5.83 2.94 3.00 3.01 3.07 - Proton - Proton 0.6 11.0 3.4 2.9 -3.8 9.01 9.36 9.36 9.39 9.10 Pretax margins (%) Inventories - MBM Resources - MBM Resources 11.1 19.2 12.0 13.5 7.5 101.2 117.2 108.8 98.8 146.8 - Tan Chong Motors - Tan Chong Motors 7.7 8.8 10.7 11.5 6.2 583.3 579.2 603.1 627.4 854.4 - UMW Holdings - UMW Holdings 11.7 9.8 9.9 10.6 9.2 1048.9 1317.6 1385.0 1358.0 1464.0 - Proton - Proton 0.8 11.2 3.4 3.1 -4.0 1282.1 1090.3 1162.6 1215.5 1391.3 Net profit margins (%) Trade Receivables - MBM Resources - MBM Resources 8.3 16.0 8.4 10.2 6.4 114.1 104.3 104.5 98.9 91.2 - Tan Chong Motors - Tan Chong Motors 7.2 7.1 8.7 9.5 4.3 307.7 310.9 310.4 111.2 280.2 - UMW Holdings - UMW Holdings 5.3 4.7 4.3 4.6 4.0 657.8 782.7 734.1 753.0 802.7 - Proton - Proton 0.7 13.7 3.0 2.4 -4.9 884.6 1022.2 835.4 739.1 776.2 CASH FLOW CASH FLOW Operating (RM’m) Financing (RM’m) - MBM Resources - MBM Resources 4.2 3.4 18.5 29.7 -21.2 -24.9 -15.3 -5.1 -28.4 -0.9 - Tan Chong Motors - Tan Chong Motors -33.0 89.1 65.5 67.6 -180.9 64.5 -22.9 -68.9 -50.5 200.7 - UMW Holdings - UMW Holdings 264.0 -77.6 292.4 275.8 56.8 -146.1 -57.4 190.7 -71.9 10.2 - Proton - Proton 267.9 1028.8 -769.7 164.6 -158.4 112.9 101.0 -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 23 April 2009 Page 3 of 4
  • 4. Auto 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 Disclaimer This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Bhd, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward- looking statements. Maybank Investment Bank Bhd expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. This report is prepared for the use of Maybank Investment Bank Bhd's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Bhd and Maybank Investment Bank Bhd accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Published / Printed by Maybank Investment Bank Berhad (15938-H) (Formerly known as Aseambankers Malaysia Berhad) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, MaybanLife Tower, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com 23 April 2009 Page 4 of 4

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