Automotive Sector - Acceptable weakening April23 sales

Weakening 2W and 4W sales in April 23 seems acceptable, as historically lesser working days and post Ramadhan and Eid Mubarak celebration recorded the same trend. In cumulative term, 4M23 arrived above our ‘23F for 2W and 4W sales. Key roles for the industry growth are: (1) more softened transmission rate pace and expect have peak in 1Q23 (2) unchanged spending appetite and (3) various promotion and continuing best deal installment from car loan provider. As such, we continue maintain our OW call on the auto industry and BUY for ASII with SOTP TP IDR7,350/share at 10.9x ‘23F PE (currently trades at 9.3x 2023F P/E, below its -1SD 10-year hist mean). Sharp drop on April23 sales, inline cumulative 4M23 Domestic 4W sales came in at 341,311units squeezed by 41.8%mom and 28.8%yoy impacted by lesser working days on Ramadhan and joint holiday on Ied Mubarak celebration. We accept this sharp drop as historical data shows that following the month of Iedul Fitri, sales are consistently declined month on month. Data showed excluding Covid and recovery momentum high base effect (2021-2022) car sales after Lebaran dropped by an average of 34.1%, while in a straight five years average (2018-2022) it weakened approximately by 39.1%. The April23 mom falling car sales also do not surprised us (see our previous report on Auto industry and ASII updates) as in cumulative 4M period, sales only inched downed by 1.5%yoy or far below prior Covid era which declined by an average of 4.4%. As a matter of fact, 4M23 car sales arrived at 35.2% compared to our ‘23F for domestic 4W sales and around 230bps above 5years historical average of 32.9%. Alike 2W April23 volume sales We maintain our stance on 2W market which we believe will tend to record softer growth compared to 4W as we think motorcycle consumers are more vulnerable to purchasing power and spending behavior rather than 4W buyer. In the same period, industry 2W sales noted the same pattern and reported alike growth figures. Total domestic motorcycle at 354,323units is deteriorated by44.0%mom and 19.4%yoy, while in cumulative terms, 4M23 2W sales was improved 11.7%yoy to 2,178,396units. Similar with 4W, motorcycle sales achievement in 4M period was 44.4% and far above its historical average by around 492bps at 39.5%. Maintaining its position as market leader ASII April23 total sales at 34,717units (excluding LCGC cars) was tanked by 25.3%yoy and 34.1%mom, yet much better compared to non-Astra car sales which as a total recorded 33.2%yoy and 50.1%mom lower to 24,194units. Decades known for its strong presence and strong brand equity, Astra continue to dominate the landscape competition with a market share surged by 688bps to 58.9% in April23, while in 4M23 period its market shares stood at 54.1%. Worth noting that 4M23 market shares is considerably in line with our ‘23F for Astra’s 4W sales at 54.5% (see our Auto Sector Dec 2022 report). We maintain our ‘23F 4W sales at 966,753units, or more conservative compared to Gaikindo which guiding at 975K and has been revised up to 1.050.000units. Mar23 loan demand appetite remains We like the continuing vehicle loan growth up until Mar23 which recorded 15.5% higher year-onyear to IDR119.5tn. This should be translated into a resilient appetite loan demand, despite the transmission benchmark rate hikes to loan yield. What’s more, we expect car loan yield has peaked in 1Q23, aside from continuing promotions, huge discount, low down payment (as low as 0%) as well as longer installment period (up to 96 months, whereas historically in pre-Covid era mostly 60 months). That said, we expect such backdrop could overall make meaningful impact to Astra auto segment growth. Maintain Overweight Ceteris paribus, we might see vehicles loan demand to withstand and expecting sales recovery in the following months both for 2W and 4W. Maintain our OW stance on the sector and BUY ASII with an SOTP TP of IDR7,350/share (9.3x ‘23F PE). Risks to our call includes: a) lower-thanexpected 2W and 4W sales growth b) higher and faster than expected rising policy rate transmission c) higher inflation, slowing economic activity, d) deteriorating spending confidence.