New Starts for The Rookies
4W Sales GrewSlightly Better in Early 2018...
Based on data from Gaikindo, 4W sales only grew very slightly, by 1.58% YoY to reach 1.07 million units in FY17. This is lower than the growth in FY16 of 4.88% YoY. Meanwhile during 2M18, 4W sales grew by 5.01% YoY which was around the same growth for 2M17 at 4.74% YoY.Commercial4Wsales increased significantly by 17.22% YoY to reach 235,310 units in FY17 and continued to strongly grow by 24.33% YoY during 2M18,afterexperienced negative growthinFY13 - FY16. On the other hand, the passenger4W segmentremained flatby-0.01% YoY, sold just 144,054 units in2M18.
Expect on Better Macroeconomic Conditions in FY18E
MNCS looks forward to recovery of the Indonesian economy with 5.3% GDP growth in FY18E. In our view, the acceleration of infrastructure development will be followed by improving commodity prices and public purchasing power that have the potential to increase both 2W and 4W commercial vehicles sales. This comes from the evident of average sales in the year before the election, showing an upward trend for 2W and 4W by 21.79% YoY and 20.53% YoY, respectively.
Wuling and Mitsubishi: Noteworthy Players
Overall, the market share of Wulling car sales grew to1%in 2M18 since its first establish in July 2017. In addition, Mitsubishi Motors' market share of car sales was14.40% in 2M18from5.90%in 2M17. However, the4W manufacturers' competition is getting tighter as the market share of Suzuki car sales grows to 11.90%in 2M18from 8.4%at the same period last year. We assess the number of newcomers impacting sales of 4W ASII and Honda. Increasingly competitive competition in the 4W market will be seen from the margin decline in FY18E.
NEUTRAL Outlook with Top Picks: ASII
We predict the automotive sector FY18E has the potential to improve along with economic growth. However, the increasingly crowded market players, especially in the LMPV and LSUV segments, overcapacity over 4W production that is not offset by rapidly growing demand, will suppress margins for 4W manufacturers. Therefore, we recommend NEUTRAL for automotive sector with top picks ASII (BUY; TP: Rp9.000) as market leader.
