JAKARTA - Competition in the automotive industry is expected to intensify given moves by automotive players to increase market share, according to Daiwa-Bahana latest report provided by Leonardo Henry Gavaza.
Following is the highlights of the report:
§ 4W: +3.8% y-y; 2W: -8.9% y-y: Based on sales figures (exhibits 7 and 8) released by Gaikindo (4W association) and AISI (2W association), April 2016 4W sales reached 84k units, +3.8% y-y but -9.9% m-m, resulting in 4M16 sales of 352k units, -3.3% y-y. For 2W, April sales reached 478k units, -8.9% y-y and -15.1% m-m, for 4M16 sales of 2mn units, -6.9% y-y.
§ ASII improves market share; Lower Honda sales: In April, ASII’s market share reached 55.9% (Mar-16: 49.1%; Apr-15: 56.9%) with monthly sales of 47.3k units, +2.0% y-y and +2.5% m-m, better than the industry trend. Nissan booked disappointing monthly sales of 0.4k units, -68% y-y and -82% m-m. Honda also booked weak monthly sales of 14.4k units, +36% y-y but -30% m-m, as Honda tried to unload its sizeable inventory level.
§ Toyota increases discounts while Daihatsu reduces discounts: Based on our channel checks, we are seeing mixed changes in discounts across the board in May compared to April (exhibits 13 and 14). In May, the Toyota Avanza is being discounted by IDR19mn (9.1%), higher than the IDR17mn (8.4%) level in March. However, Daihatsu Xenia is being discounted lower at IDR17mn (9.5%), compared to IDR20mn (11.1%) in April. Honda has maintained its IDR15mn (7.4%) discount for Honda Mobilio. However, we expect the average 2016 discount level to hover around current levels, slightly lower compared to last year’s.
§ Honda 2W (ASII) sales higher on market share: Honda’s April 2W sales (ASII) reached 349k units, -6% y-y and -21% m-m, reflecting a market share of 72.9% (Mar-16: 78.1%; Apr-15: 70.7%). Yamaha booked sales of 120k units, -14% y-y but +11% m-m, reflecting a market share of 25.1% (Mar-16: 19.2%; Apr-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 bright spots, we expect the intense competition and resultant discounts to persist in the medium term, especially as several brands are due to be launched in 2017. Based on Bahana’s longer-term GDP growth expectation of 5.2%, we believe that the Indonesian 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, in 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: Retain REDUCE on ASII with lower TP of IDR5,650
The sector’s 23% outperformance earlier this year has been cut to zero ytd (exhibit 4) currently on the adverse impact of its dealership restructuring.
“While we maintain our Neutral sector rating as we expect autos to benefit from the expectation of higher GDP growth, interest rate cuts and a stronger IDR, weak commodity prices are likely to negatively affect purchasing power,” Daiwa-Bahana said in the report.
“For ASII, we believe further de-rating will persist on continued heavy discounting and we therefore lower our SOTP-based 12 month target price from Rp6,000 to Rp5,650.
For IMAS, Daiwa-Bahana reiterated their HOLD rating and DCF-based TP of IDR2,000 on continued weak prospects. On GJTL, they maintain their BUY rating with unchanged DCF-based TP of IDR860. Risks: higher margins (ASII), increased Datsun sales (IMAS), and a weaker IDR (GJTL). (*)