Automotive Sector Update - 23 March 2021

Going on a Highway

ASII FY20 Financial Performance : Additional benefit from dividends

•  ASII posted revenue of IDR175 trillion in FY20 or decreased -26.19% YoY (vs IDR237 trillion in FY19) this was due to the decline in ASII car sales in FY20 by 49.65% YoY or recorded at 270,076 units in FY20 (vs 536,402 units FY19) nevertheless ASII still hold the largest market share by 50.76%.
•  Meanwhile, COGS decreased 37% YoY to IDR136 trillion.
•  Thus, ASII recorded a decrease in net profit by -25.53% YoY to IDR16.2 trillion in FY20 (vs IDR27.7 trillion in FY19) while maintaining NPM at 9.23% level.
•  We see that the effects of the pandemic are very pronounced on the automotive industry in FY20, but the easing of restrictions on community activities, along with the ongoing vaccinations, and the 0% PPnBM tax incentive will greatly assist the recovery of car sales so we estimate that domestic car sales in FY21E will exceed our target of 700,000 units or grow more than 32%.
•  In addition, despite the decline in profits, ASII remains committed in providing dividends where the average dividend yield in the last 5 years is at 2.5% level. Meanwhile in the last 2 years the yield has reached 3.05%.

The Jumbo Stimulus has been Released, Whats Next?

•  Auto sector has received a benefit with the implementation of the 0% PPnBM tax incentive for the car type under 1,500cc with the sedan and 4x2 categories that consist of 70% Domestic Component Level (TKDN) on March 1, 2021 which is expected to boost car sales.
•  On the other hand, the government is reviewing the implementation of PPnBM relaxation of 0% for 2500cc cylinder vehicles. This relaxation expansion plan is based on the existence of vehicle type with capacities above 1,500 cc and having a high local purchase rate of around 50% - 60% but with 70% Domestic Component Level (TKDN).
•  We are still waiting for the release of official data regarding car sales in March 2021 which we estimate will grow compared to sales in February 2021.

Looking Ahead: The Future Focus of the Government is BEV

•  The government plans to increase the PPnBM tariff for hybrid and PHEV vehicles or cars with conventional engines, this is done to keep the Battery Electric Vehicle (BEV) price affordable, the following details the proposed PPnBM rate changes in Exhibit 02.
•  We see that the government's support for BEVs is quite good, but on the other hand, automotive manufacturers will need time to adapt towards the shifting, from conventional engines to BEVs, as the vehicle stocks owned by manufacturers are still dominated by fuel vehicles.

Maintaining NEUTRAL Outlook with Top Pick ASII  (BUY; TP: IDR7,480)

We still maintain our NEUTRAL outlook for the automotive sector where the expanded 0% PPnBM policy will have an impact on overall car sales growth, on the other hand the plan to increase PPnBM rates for Hybrid and PHEV vehicles will have a negative impact on automotive manufacturers who are still dominated by petrol fuel vehicle. Our top pick remains ASII (BUY TP: Rp7,480) where ASII owns most types of cars that get tax incentive and has the potential to increase car sales, plus ASII is a solid dividend player. ASII is currently traded at –1STD (5-year Average) with PE at 14.33x.

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