Sep 16, 2016 14:16:57

Indonesia Automotive: August auto sales: Strong recovery

§ Solid 4W sales, +6% y-y; 2W: -15% y-y: Based on figures (exhibits 7 and 8) released by Gaikindo (4W association) and AISI (2W association), August 2016 4W wholesale sales reached 96k units, +54% m-m and +6% y-y, bringing 8M16 sales to 691k units, +3% y-y, in line with our expectation. For 2W, August sales reached 528k units, +73% m-m but -15% y-y, with 8M16 sales reaching 3.8mn units, -10% y-y, lower than our forecast.

§ ASII continues strong momentum; Honda also strong: In August, ASII's wholesale market share reached 59.2% (July-16: 59.3%; August-15: 54.1%), with monthly sales of 57k units, +54% m-m and +17% y-y, helped by the newly launched Calya and Sigra, in line with our estimates. For 8M16, ASII booked 4W sales of 368k units, +10% y-y. August sales of Nissan and Datsun of 3.2k units were +13% m-m but -21% y-y. For Honda, monthly sales recovered to 17k units, +84% m-m and +29% y-y.

§ ASII average discount increases from 7.3% to 7.9% in September: Based on our channel checks, ASII’s discount increased from 7.3% in August to 7.9% in September (exhibits 11 and 12), mostly due to the Low MPV, Low SUV and LCGC models. In July, the Toyota Avanza was discounted by IDR16.5mn (8.1%), higher than the IDR15mn (8.1%) level in August. Toyota Innova also had a higher discount of IDR17mn (5.5%), compared to IDR10mn (3.5%) in August. As such, we expect the average 2016 discount level to hover around current levels.

§ Weak Honda 2W (ASII) sales despite solid market share: August 2W sales (ASII) were 389k units, +91% m-m but -10% y-y, for 8M16 sales of 2.8mn units, -3% y-y, below our expectation. Yamaha sales were 124k units, +36% m-m but -27% y-y, for 8M16 sales of 934k units, -23% y-y. Honda maintained its dominance due to solid scooter demand (8M16: 72.5%; 8M15: 67.3%).

Outlook: Stronger growth with ASII’s rising market share
In our view, the auto sector should benefit from Indonesia’s likely upcycle in 2017 GDP growth to 5.4% on: (1) higher purchasing power on lower interest rates, contained inflation and a stronger IDR; and (2) increased infrastructure projects, helped by tax receipts from the government’s tax amnesty program. The FSA also plans to boost the auto-sector demand by lowering the downpayment for vehicles from 20-25% to 5%. In 2017, we expect 4W sales volumes to reach 1.1mn units, +7% y-y. We expect ASII’s market share to improve from 50% in 2015 to 58% in 2017, backed by strong demand for its new models.

Recommendation: Maintain BUY on ASII, IMAS, and GJTL
Helped by lower interest rates and higher government spending ahead due to the tax amnesty, we expect the economy to improve, supporting demand for big-ticket items. Thus, ASII continues to be a BUY with an unchanged SOTP-based TP of IDR9,100 on higher sales volumes, market share and margins. On IMAS, we retain our BUY rating on 41% upside potential to our unchanged DCF-based IDR2,000 TP on severe ytd underperformance (exhibit 4). For GJTL, we also maintain our BUY rating with an unchanged DCF-based TP of IDR1,700. Risks to our stock calls: Lower margins (ASII), lower Datsun sales (IMAS) and weaker IDR (GJTL).