PP 7767/09/2010(025354)

27RHB
September
Research 2010
Corporate Highlights

Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

S e cto r Upd at e
27 September 2010

MARKET DATELINE
Motor Recom : Overweight
Another Month Of Good Numbers (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) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11
UMW Dec 6.67 7.27 7.2 11.9 11.3 10.1 1.7 1.5 7.9 29.6 3.7 OP
Proton^ Mar 4.89 5.50 11.6 6.8 6.5 6.1 0.5 0.4 n.m 6.8 n.a OP
MBM Dec 3.19 5.30 5.3 5.0 6.6 6.3 0.7 0.7 14.9 11.5 3.8 OP
APM Dec 4.55 5.53 7.0 13.8 9.1 8.0 1.2 1.1 4.9 25.8 2.9 OP
Tan Chong Dec 5.66 6.16 16.2 48.6 12.5 8.4 2.0 1.7 10.8 32.3 2.1 MP
Sector 10.2 17.2 9.8 8.3
Sector Avg (ex-Proton) 9.69 20.8 10.88 9.0
^ Refer to FY12-13

Chart 1. TIV Growth

♦ TIV still going strong. August’s TIV reached 55,208 units and was up
13.7% yoy and 3.2% mom (+2.9% yoy and -1% mom in July). Better 600,000 100.0

80.0

numbers were mainly due to the rush for car deliveries before the Hari 500,000
60.0

Raya festivities. Going into September, MAA has mentioned that TIV
400,000 40.0

20.0
300,000

numbers will be lower due to consolidation after the rush for deliveries 0.0

200,000 -20.0

and clearing of back order. We also expect the shorter working month to 100,000
-40.0

be another reason for softer sales in the coming month. YTD TIV of
-60.0

0 -80.0

2009F

2010F
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
409,806 achieved 70% of our full-year forecast of 587,698 and 72% of
TIV (LHS) Growth yoy % (RHS)

MAA’s forecast of 570,000.

Chart 2. Market Share
♦ Market leaders still Perodua and Proton. Both the national marques
60.0

continued the year in top form, accounting for 26.3% (Proton) and 31.1%
50.0

(Perodua) of market share. Perodua’s market share grew (+0.6%) and 40.0

Proton’s grew (+0.3%). The non-national segment was led by Toyota that 30.0
%

had the third largest market share of 14.5%, while its Japanese 20.0

competitor Honda was next in line with 8.3%. Changes to marques 10.0

rankings are unlikely going forth, and we expect Proton and Perodua’s 0.0

2009F

2010F
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
dominance to continue given their popularity in the <RM50k passenger Proton Perodua Toyota Nissan Honda

vehicle segment.
Source: MAA, RHBRI

♦ Maintain 2010-12 TIV projections. Given that our TIV numbers are
still within YTD numbers, and there is a likelihood of some moderation to
TIV numbers going into the second half, we maintain 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.

♦ 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. TIV numbers have soared since the beginning of the
year, reaffirming our view that 2010 is the second year of a new 3-year
cycle for motor stocks. We maintain that our 2010 earnings growth is
expected to sustain on the back of: 1) continual industry TIV growth; 2) Joshua CY Ng
strengthened RM against US$ and Yen that would help to reduce costs of (603) 9280 2162
imported materials; and 3) positive consumer sentiment with the greater joshuang@rhb.com.my
stability of the economy. We reiterate our Overweight stance on the
sector.

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

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 27 September 2010

August TIV Up 13.7% YoY, and 3.2% MoM

♦ Yoy TIV grew 13.7%. August’s TIV reached 55,208 units (vs. 48.6k units in August 2009) as car sales
continued on its strong trend going into the eighth month of the year. Passenger TIV grew 12.5% while
commercial TIV increased significantly by 25.4%. YTD TIV of 409,806 achieved 70% of our full-year forecasts
of 587,220 and 72% of MAA’s forecast of 570,000.

♦ Mom TIV also up 3.2%. On a mom basis, sales grew as there was a rush for car deliveries before the Hari
Raya festivities. Passenger TIV grew 3.1% while commercial TIV was up by 4.3%. While MAA has mentioned
that September’s TIV numbers will be lower due to consolidation after the rush for deliveries and clearing of
back orders, we also expect the shorter working month to be another reason for softer sales in the coming
month

Chart 3: TIV And Yoy Growth

Source: MAA, RHBRI

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

Source: MAA, RHBRI Source: MAA, RHBRI

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 27 September 2010

Chart 6: TIV & MoM Growth

Source: MAA, RHBRI

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

Source: MAA, RHBRI Source: MAA, RHBRI

Table 2: Motor Sales For 2010

Aug-09 July-10 Aug-10 Mom Chg Yoy Chg YTD 09 YTD 10 Yoy chg
(Nos.) (Nos.) (Nos.) (%) (%) (Nos.) (Nos.) (%)
Proton 13,230 14,032 14,527 3.5 9.8 96,960 108,685 12.1
Perodua 15,778 16,540 17,176 3.8 8.9 108,471 128,652 18.6
Toyota 7,538 7,652 7,999 4.5 6.1 52,326 60,111 14.9
Nissan 2,870 2,930 3,174 8.3 10.6 20,872 23,610 13.1
Honda 2,955 4,588 4,572 (0.3) 54.7 27,106 31,304 15.5
TIV 48,574 53,483 55,208 3.2 13.7 351,846 409,806 16.5
Passenger 44,135 48,144 49,642 3.1 12.5 319,720 369,622 15.6
Commercial 4,439 5,339 5,566 4.3 25.4 32,126 40,117 24.9
Source: MAA

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 27 September 2010

♦ Market leaders still Perodua and Proton. Both the national marques continued the year in top form,
accounting for 26.3% (Proton) and 31.1% (Perodua) of market share respectively. On a yoy basis, Proton’s
TIV grew 9.8% while Perodua’s TIV rose 8.9%. The non-national segment was led by Toyota that had the third
largest market share of 14.5%, while its Japanese competitor Honda was next in line with 8.3%. Changes to
marques rankings are unlikely going forth, and we expect Proton and Perodua’s dominance to continue given
their popularity in the <RM50k passenger vehicle segment.

Chart 9: Market Share Mom & Yoy Chart 10: Market Share YTD 09 vs. YTD 10

Source: MAA, RHBRI Source: MAA, RHBRI

Forecasts and Assumptions

♦ Maintain 2010-12 TIV projections. Given that our TIV numbers are still within YTD numbers, and there is
the likelihood of some moderation to TIV numbers going into the second half, we maintain 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

♦ Tan Chong fully valued at this juncture. We note that the company’s share price has risen significantly and
is now close to our SOP fair value of RM6.16. While we are positive on the company’s current earnings
capability and see value to come from its recent entry into the Vietnam market, we believe the catalysts will
come only in FY12 and beyond. As such we downgrade our call on the stock to a Market perform at this
juncture. Earlier-than-expected turnaround from Nissan Vietnam Ltd. will be the key driver for us to change
our view on the stock.

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 27 September 2010

♦ Maintain overweight stance on the sector. We reaffirm that it is now the best time to invest in local motor
stocks and 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 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

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
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its associated persons may from time to time have an interest in the securities mentioned by this report.

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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.

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