November 21, 2012

MALAYSIA

AUTOS

SHORT TERM (3 MTH)

LONG TERM

SECTOR FLASH NOTE |

CIMB Analyst

Pent-up demand in Oct

As expected, a strong 21% mom rebound in vehicle sales was led by pent-up demand after Seps pre-Budget weakness. However, it may not be enough to meet our 2012 forecast of 4.7% growth unless the momentum accelerates with aggressive discounting and new models.

Lucius Chong
T (60) 3 20849869 E lucius.chong@cimb.com

Figure 1: October total vehicle unit sales makes a healthy mom rebound
70,000

60,000
50,000 40,000 30,000 20,000 10,000 0

2012

2011

SOURCES: CIMB, COMPANY REPORTS

DRB-Hicom remains our top pick for the rising market shares of Honda and Proton. UMW remains an Outperform and an investor favourite. Non-auto earnings (especially in the industrial sector) are an added booster. Maintain Overweight on the sector with catalysts expected from the introduction of the New Automotive Policy sometime next year.
Highlighted Companies UMW
All eyes will be on 3Q results this week. UMW is an investor favourite for its earnings delivery and capital management. It has been among the bestperforming blue chips this year and is thus vulnerable to any disappointments.

buyers held back their purchases in 3Q in anticipation of measures in the budget. The 20.7% mom rebound was across the board, for national, non-national cars, MPVs and commercial vehicles. However, the rebound was not enough to create strong yoy growth. Our forecast of 4.7% sales growth for the full year may need to be revised unless 4Q12 growth accelerates to at least 13%.

What Happened
As expected, vehicle sales in Oct rebounded, following a weak pre-Budget Sep, by 20.7% mom. However, yoy growth was only 3.3% to 55,358 units. 10M12 industry sales were up 1.9% yoy.

What You Should Do

With the year close to an end, distributors are likely to incentivise car buyers with discounts and promotions. New models like the Nissan Almera which has already received 7,000 bookings should also support growth. Overweight on the sector is maintained. Tan Chong is our only Underperform.

DRB-Hicom
In contrast, DRBs quarterly results have been disappointing, no surprises because of restructuring challenges as it absorbs Proton. What it has left short in earnings it has made up with progress in non-core asset sales.

What We Think
Further pent-up demand can be expected in 4Q12 after many car

Tan Chong Motor Holdings

Squeezed in the middle as UMW and DRB now control up to 80% of the market, Tan Chong is reviving its fortunes with the launch of the B-segment Almera which has received 7,000 bookings to date.

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. CIMB Securities Limited has had an investment banking relationship with Geely Automobile Holdings within the preceding 12 months.

Designed by Eight, Powered by EFA

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Figure 2: Sector Comparisons

Company Brilliance China Automotive Dongfeng Motor Group Guangzhou Auto - H Geely Automobile Holdings Great Wall Motor Minth Group Qingling Motors Company-H Weichai Power Co Ltd-H China/Hong Kong average Astra International Indomobil Sukses Int'l Indonesia average Tan Chong Motor Holdings Oriental Holdings DRB-Hicom UMW Holdings Malaysia average Average (all) TCM MK ORH MK DRB MK UMWH MK Underperform Outperform Outperform Outperform 4.36 7.78 2.37 9.95 3.65 10.00 3.60 11.75 1,016 1,589 1,559 3,794 ASII IJ IMAS IJ Outperform Outperform 7,700 5,200 9,200 6,700 32,363 1,507 Bloomberg Ticker 1114 HK 489 HK 2238 HK 175 HK 2333 HK 425 HK 1122 HK 2338 HK Recom. Outperform Outperform Neutral Neutral Underperform Neutral Outperform Neutral Price (local curr) 8.84 9.70 5.36 3.34 21.35 8.34 1.75 28.70 Target Price (local curr) 10.10 15.70 6.30 2.80 17.30 8.30 2.23 22.30 Market Cap (US$ m) 5,732 10,781 4,970 3,224 8,999 1,159 560 6,898 Core P/E (x) CY2012 13.1 7.4 7.4 13.1 12.5 7.6 11.7 10.7 9.6 18.2 14.5 18.0 17.3 17.5 10.4 12.2 17.3 12.5 CY2013 9.9 6.5 6.0 10.1 12.1 6.8 10.5 9.5 8.3 14.9 10.7 14.7 10.9 14.5 7.1 10.9 10.9 10.6 3-year EPS CAGR (%) 31.3% 5.5% 6.3% 11.1% 11.0% 10.9% 2.9% -4.3% 7.1% 12.6% 25.8% 13.3% 10.8% 8.9% 38.1% 19.3% 10.8% 9.1% P/BV (x) CY2012 3.67 1.35 0.82 1.83 2.62 1.01 0.49 1.48 1.54 4.70 2.59 4.54 1.58 1.06 0.46 2.46 1.58 2.28 CY2013 2.68 1.15 0.74 1.57 2.26 0.92 0.49 1.29 1.33 3.92 2.13 3.79 1.42 1.03 0.41 2.26 1.42 1.95 Recurring ROE (%) CY2012 32.5% 19.8% 11.4% 14.9% 22.8% 13.9% 4.2% 14.8% 17.1% 27.8% 19.3% 27.2% 9.6% 6.1% 5.1% 20.6% 9.6% 19.6% CY2013 31.3% 19.0% 13.1% 16.9% 20.0% 14.1% 4.7% 14.6% 17.2% 28.6% 21.9% 28.1% 13.8% 7.2% 6.1% 21.6% 13.8% 19.9% CY2014 26.4% 17.6% 13.9% 15.3% 18.5% 13.9% 5.1% 14.8% 16.5% 27.3% 22.0% 26.9% 14.2% 7.4% 7.7% 21.1% 14.2% 19.2% EV/EBITDA (x) CY2012 94.8 2.5 na 9.9 6.8 3.0 1.2 5.0 5.5 13.7 21.2 14.0 10.9 5.4 -7.4 6.5 10.9 8.8 CY2013 80.6 1.1 na 7.8 6.5 2.4 1.2 4.5 4.4 10.9 16.6 11.1 8.3 4.6 -5.9 5.6 8.3 7.2 Dividend Yield (%) CY2012 0.0% 2.0% 4.1% 0.9% 2.1% 4.5% 7.0% 0.3% 1.7% 2.0% 0.8% 2.0% 2.1% 1.2% 1.6% 4.9% 2.1% 1.9% CY2013 0.0% 2.3% 5.1% 1.2% 2.2% 5.1% 7.8% 0.3% 2.0% 2.1% 1.0% 2.1% 2.3% 1.4% 1.9% 5.5% 2.3% 2.0%

SOURCES: CIMB, COMPANY REPORTS

Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

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November 21, 2012

Oct released pent-up demand

Oct car sales, as expected, benefitted from pent-up demand in Sep. There was healthy mom growth for vehicle sales across the board.
Figure 3: Vehicle sales by type in Oct 12
Units Passenger cars National Non-national Passenger 4WD + SUV National Non-national Passenger MPV and W/Van National Non-national Commercial Vehicles National Non-national Total National Non-national Oct-12 Sep-12 % mom 37,004 30,889 22,930 19,123 14,074 11,766 1,605 0 1,605 9,806 6,119 3,687 6,943 0 6,943 1,262 0 1,262 8,081 5,138 2,943 5,640 0 5,640 Oct-12 Sep-12 % yoy YTD - 12 YTD - 11 % yoy (1.6) 347,338 (10.6) 220,371 17.7 2.0 n.m 2.0 18.7 19.3 17.5 12.7 n.m 13.0 3.3 15.4 126,967 15,371 0 15,371 89,322 55,176 34,146 61,433 119 61,314 513,464 237,798 358,033 223,681 126,814 16,338 0 16,338 84,440 49,653 34,787 55,097 1,399 53,698 503,859 282,690 221,169 (3.0) (1.5) 0.1 (5.9) n.m (5.9) 5.8 11.1 (1.8) 11.5 n.m 14.2 1.9 (2.5) 7.5

19.8 37,616 31,513 19.9 25,662 19,735 19.6 11,954 11,778 27.2 n.m 27.2 21.3 19.1 25.3 23.1 n.m 23.1 1,574 0 1,574 8,264 5,127 3,137 6,161 19 6,142 1,157 0 1,157 6,958 4,200 2,758 4,779 32 4,747

55,358 45,872 29,049 24,261 26,309 21,611

20.7 53,615 44,407 19.7 30,808 23,967 21.7 22,807 20,440

(5.7) 275,666

SOURCES: CIMB, COMPANY REPORTS

Figure 4: National and non-national vehicles rebounded across the board

40000 35000 30000 25000 20000 15000 10000 5000 0

2012

2011

2012 Proton

2012 Perodua

SOURCES: CIMB, COMPANY REPORTS

Honda and Proton continued to claw market share

Hondas market share was almost back to its pre-Thailand flood level of 7%. Hondas market share could exceed this figure with the introduction of its new Civic, which is expected to be the top draw in 2013. Proton also continued to add to its market share with the new Preve. The Exora MPV is still the best-selling model. Perodua's market share is slowly being chipped away by the absence of new models.

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Figure 5: Market shares in Oct 12

Figure 6: Market shares in Oct 11

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

Figure 7: Market shares in Oct 12

Figure 8: Market shares in Sep 12

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

Expected improvement in Nissans sales

Proton's Preve price point will be tested by the launch of Nissan's new Almera at RM66,800. Tan Chongs market share has been trending at 5% and the Almera could be the catalyst that propels its position in the industry. However, with a waiting list for 7,000 Almeras, we are not sure whether Tan Chong will have the capacity and scale to cause a significant dent on Proton which sells at least 10,000 passenger cars a month.

Valuation and recommendation

Market-share trends for Honda and Proton bode well for our top pick, DRB. UMW's non-auto earnings, particularly in the industrial and machinery sectors, should compensate for any softness in its Toyota and Perodua business where topline and market share have been stagnating for a few months. Tan Chong remains our only Underperform. We will need to see more than just the launch of the Almera to reassess its fortunes. Tan Chong is sorely lacking in presence in the hybrid segment where Honda and Toyota are giving much of their attention to in their long-term masterplans.

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Distribution of stock ratings and investment banking clients for quarter ended on 31 October 2012 805 companies under coverage Rating Distribution (%) Outperform/Buy/Trading Buy Neutral Underperform/Sell/Trading Sell 55.6% 33.6% 10.9% Investment Banking clients (%) 6.1% 1.9% 4.8%

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Stock
OUTPERFORM: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 3 months. relevant relevant relevant relevant relevant

Sector
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Recommendation Framework #2 **

Stock
OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months. NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months. UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months. TRADING BUY: Expected positive total returns of 10% or more over the next 3 months. TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

AUTOS
November 21, 2012

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.
AAV not available, ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH - Good, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Very Good, ITD - Good, IVL - Very Good, JAS Very Good, KAMART not available, KBANK - Excellent, KK Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM Very Good, TICON Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good, WORK Good.