Apr 18, 2016 00:21:34
Indonesia Automotive: March wholesale auto sales: Improved m-m; 3M16 declined y-y
- 4W: -5.5% y-y; 2W: +3.1% y-y: Based on sales figures (exhibits 7 and 8) released by Gaikindo (4W association) and AISI (2W association), March 2016 4W sales reached 94k units, -5.5% y-y, but +6.5% m-m. For 2W, February sales reached 563k units, +3.1% y-y and +7.3% m-m. For 3M16, auto sales still declined, by 5.4% y-y for 4W and 6.3% for 2W. However, we are seeing an improving trend m-m.
§ Honda’s solid momentum: In March, ASII's market share reached 49.1% (Feb-16: 47.0%; Mar-15: 50.2%) with monthly sales of 46.2k units, -7.5% y-y but +11.4% m-m, in line with the industry trend. Nissan booked monthly sales of 2.3k units, -54% y-y but +30% m-m. Honda continued its strong momentum, booking monthly sales of 20k units, +47% y-y and +11% m-m, supported by its new model Honda BRV.

- Higher discounts in April: Based on our channel checks, we are seeing higher discounts across the board in April compared to March (exhibits 13 and 14). In April, the Toyota Avanza is being discounted by IDR17mn (8.4%), higher than the IDR15mn (7.4%) level in March. Daihatsu Xenia is being discounted by even more at IDR20mn (11.1%). There is currently an IIMS 2016 exhibition (7-17 April), which could push up discounts as well. However, we expect the average 2016 discount level to hover around the current level, slightly lower compared to last year.

- Honda 2W (ASII) sales higher on market share: Honda’s March 2W sales (ASII) reached 440k units, +17% y-y and +21% m-m, reflecting a higher market share of 78.1% (Feb-16: 69.1%; Mar-15: 68.9%). Yamaha booked even lower sales of 108k units, -26% y-y and -22% m-m, reflecting a lower market share of 19.2% (Feb-16: 26.9%; Mar-15: 26.7%). We believe that higher scooter demand positively affected Honda’s market share.

Outlook: Intense competition likely to persist
Despite some short-term improvement, we expect the intense competition and resulting discounts to persist in the medium term, especially as several brands will be launched in the market in 2017. Given the longer-term GDP growth of 5.2%, we believe that the Indonesia auto sector will experience a CAGR of only 7% in 2016-20 compared to 15% y-y in the commodity boom years (2007-2013). 2W sales will likely grow just 3% y-y during that period. However, for 2016, we expect a gradual 4W sales volume recovery to 1.08mn units, +7% y-y and flat 2W sales volumes of 6.4mn units.

Recommendation: Neutral with Reduce ASII, Hold IMAS & GJTL
The sector has outperformed the market (exhibit 4) due to the expectation of a higher GDP growth, interest rate cut and stronger IDR. At this stage, we upgrade our sector rating from Underweight to Neutral as we believe that auto sales had bottomed out in 2015. However, we believe that weak commodity prices will negatively affect purchasing power ahead. For ASII, even though we raise our SOTP-based TP from IDR5,450 to IDR6,450, we maintain our REDUCE rating as the stock has rallied above its fundamental value. For IMAS, we reiterate our HOLD rating and DCF-based TP of IDR2,000 on continued weak prospects. On GJTL, we cut our rating from BUY to HOLD with unchanged DCF-based TP of IDR740, as the share price almost reached our TP. Risks: higher margins (ASII), increased Datsun sales (IMAS), and a weaker IDR (GJTL).