Jun 15, 2016 09:58:12
Indonesia Automotive: May auto sales: Weak despite Lebaran preparation

* Poor retail sales with 4W: -2.0% y-y; 2W: -1.7% y-y: Based on the sales figures (exhibits 7 and 8) released by Gaikindo (4W association) and AISI (2W association), May 2016 4W wholesale sales reached 88.5k units, +4.5% m-m and +11.5% y-y, resulting in 5M16 sales of 440k units, -0.6% y-y. However, retail sales data was not as rosy as the wholesale figures as May 4W sales only reached 86k units, +2% m-m but -2% y-y, resulting in 5M16 sales of 432k units, flat y-y. For 2W, May sales reached 462k units, -3.5% m-m and -1.7% y-y, for 5M16 sales of 2.4mn units, -6% y-y. Both 4W and 2W numbers were lower than our expectations for the full year.

* ASII’s retail sales better than industry’s; Honda recovered m-m: In May, ASII's wholesale market share reached 55.3% (Apr-16: 55.7%; May-15: 49.7%) with monthly sales of 49.0k units, +3.8% m-m and +24.3% y-y. However, on retail sales, ASII booked 50.3k units, +3.7% m-m and +5.9% y-y, or 5M16 sales of 231k units, +7.9% y-y, helped by LCGC models and the newly launched Innova and Fortuner, in line with our estimates. Nissan & Datsun’s sales of 4k units were -2% m-m and -7% y-y with higher proportion of Datsun units. For Honda, monthly retail sales recovered to 13.8k units, +20% m-m and +13% y-y (wholesale: 17.4k, +21% m-m and +54% y-y).

* ASII’s average discount rose from 7.2% in May to 7.5% in June: Based on our channel checks, ASII’s discount increased from 7.2% in May to 7.5% in June (exhibits 12 and 13), mostly due to LCGC and Low SUV models, and Toyota Avanza. In June, Toyota Avanza was discounted by IDR20mn (9.9%), higher than the IDR19mn (9.1%) in May. Toyota Agya carried a higher discount of IDR10mn (7.9%), compared to IDR8mn (6.3%) in May. Honda maintained its IDR8mn (3.9%) discount for Honda Mobilio. As such, we expect the average 2016 discount level to hover around current levels.

* Honda’s 2W (ASII) sales higher on market share: Honda’s May 2W sales (ASII) reached 339k units, -2.7% m-m but +11% y-y, resulting in 5M16 sales of 1.8mn units, +1% y-y, in line with our expectation. Yamaha booked sales of 112k units, -6.7% m-m and -25.6% y-y, bringing 5M16 sales to 592k units, -18.6% y-y. We believe that higher scooter demand will continue to benefit Honda’s market share (5M16: 72.8%; 5M15: 68.1%).

Outlook: Intense competition likely to persist
Despite some short-term improvements, we expect current intense competition and discounts to persist in the medium term, especially as several brands will launch new products in 2017. On slow purchasing power growth ahead, we believe that 4W sales will only experience a 7% y-y CAGR in 2016-20 while 2W sales will likely grow just 2.5% y-y. In 2016, we expect 4W sales volume recovery to 1.08mn units, +7% y-y, and flat 2W sales volumes of 6.4mn units.

We believe weak purchasing power and the government’s aggressive taxation drive, including tax amnesty, will continue to take a toll on big ticket items. For ASII, we maintain our REDUCE rating with SOTP-based 12M TP of IDR5,650 due to its adverse impact from dealership restructuring. We raise IMAS from Hold to BUY on 33% upside to our DCF-based TP of IDR2,000 on severe ytd underperformance (exhibit 4). However, we cut GJTL from Buy to HOLD as it has surpassed our DCF-based TP of IDR860. Risks: Higher margins ($ASII), lower Datsun sales ($IMAS), and weaker/stronger IDR ($GJTL).