Automotive sector: Fasten your seatbelt

Leonardo Henry Gavaza, CFA
Senior Research Manager
Research Department

As we expect a fuel price hike of around IDR3,000, representing around a 46% increase, we cut our 2015F 4W sales volumes growth to flat y-y from 10% y-y growth previously and 2W sales volume growth to 3% y-y from 6% y-y.  

In addition, we expect additional policy risk from LCGC as Jokowi plans to add back a 10% luxury goods tax, resulting in higher ASP and limiting the growth of sales volumes and margins.  

Following our trip to the recent Indonesia International Motor Show (IIMS) 2014, we believe that the price war in the 4W segment will persist. Based on our price survey of the popular low MPV segment, we believe that the price war (exhibit 1) is continuing, with some models now offering an IDR19mn discount (11%).

We also see more new-model launches, such as the Mitsubishi Delica, the new MPV-SUV model, as well as Honda’s new Freed model for the mid MPV segment. On the other side, we expect ASII to respond with a new MPV model to try to limit its market-share loss.  

Following the successful launch of the Honda Mobilio in the low-end MPV segment, Honda is entering the low-end SUV segment through the launch of Honda HRV. This should provide additional competitive pressure for ASII’s models, Toyota Rush and Daihatsu Terios, as well as IMAS’s model, Nissan Juke. We do not expect the new Nissan X-Trail model from IMAS to gain more traction from customers.

We expect the fuel-hike impact to be milder for the 2W segment than for the 4W. Overall, on top of flat 4W-sales volumes in 2015, we expect weak margins to persist on the back of intense competition and a higher tax on LCGC sales.
With more new models to be launched, we expect continued margin pressure for Astra International (ASII) and limited market share for Indomobil (IMAS). We believe aggressive marketing in the low MPV segment will lead to margin contraction for ASII, while several new dealership developments could bring down IMAS’s margin.

In summary, we retain our UNDERWEIGHT stance on the auto sector due to flattish volume growth from several policy headwinds, as well as lower ASPs and margins given fierce competition. Ahead of the government’s anticipated fuel-price hike, we also expect an interest-rate sensitive sector like automotive to remain out of favor and underperform the market. Exhibit 1. Auto retail sales survey