Automotive Sector - Growth likely to continue

2022 4W and 2W sales arrived above our and auto associations forecast. Yet, we believe growth will be normalized this year. Rising policy rate transmission pace to car loan yield will become the main key. We might see growth to remain arrive at above 5year historical CAGR (0.4%yoy) prior Covid-19. Key roles for the industry growth are: (1) policy rate hikes transmission rate pace (2) consumer spending confidence amid the uncertainty condition and (3) various promotion as well as continuing best deal installment from car loan provider. Maintain OW on the automotive industry and BUY for ASII with SOTP TP IDR7,350 at 10.2x ‘23F PE (currently trades at 8.1x ‘23F P/E, below its -1SD 10-year hist mean). 2022 4W sales above our and Gaikindo forecast Retail 4W sales at 1,013,582 unit or 17.4% yoy in 2022, while wholesales reached 1,048,040 units or grew 18.1% yoy and arrived above our and Gaikindo expectation (9.6%/9.2%). Of the total, Toyota and Daihatsu account for 31.6% and 19.3% from total sales, while Astra as a whole continue dominating the industry competition landscape with 54.8% of market share amid stiffer car manufacturers rivalry. On Dec22 stand alone, wholesales at 105,354unit (8.9% yoy) and 15.4% mom from 96,673 units. Soften 4W growth in 2023 and flattish 2W market We believe, high base effect, recovery momentum and the end of low interest environment are become several headwind factors. Nonetheless, various new variant launched is likely to persist as manufacturers will attempt to continue gain market share. On this backdrop, we believe competition will get stricter and dealer as well as car loan provider likely to continue offering the best deal. The association guiding 2023F sales at 975K or 0.85% above our forecast at 966,753units. We expect Astra will continue ruling the competition with 56.8% of market share at 549,531units. On 2W market, sales at 5,221,470 units or inched up 3.2%yoy. AISI ’23F sales at a range of 5.4mn-5.6mn units, while our forecast is lower at 4.901.657 (ASII market share 69.9%) as we view motorcycle buyer are more exposed to purchasing power and spending appetite in the uncertainty situation. Impact to ASII With better-than-expected 2022 sales, we expect auto division contribution to Astra consolidated net profit will be inched up by 1.2% to 35.1% compared to our ‘22F of 34.0%. This year auto segment will continue to play important role and we forecast the division to contribute around 36.6% to Astra total earnings, or around 1.04% higher vs 5yr historical average. Avanza and Xenia will continue to become as the backbone, aside from Raize and Astra’s LCGC variant champ which will become as additional growth support. We also view new Innova Zenix will enrich overall Astra’s MPV variant. Various promotions and huge discount remain in place Our channel check revealed that year to date, several manufacturers continue to offer huge discount ranging from IDR 15mn to IDR 42mn. On interest rate, car loan provider in average offering around 5.18% flat p.a for 5 years credit period, while for shorter period (0.6-1 year) several auto financing offers as low as 0% interest rate. Additionally, latest data showed that blended consumer loans from commercial banks interest rate remain at below prior covid level, stood at 10.38% in Nov22, while the amount of vehicle loans grew 16.5% yoy, 2.2% qoq, amounting IDR114.5tn. Latest catalyst to stimulate the industry mood Effort to developing EV and its supported ecosystem has been so intense. Government plan to provide subsidy at IDR80mn and IDR40mn for EV and Hybrid basis car, while for motorcycle is being planned to get subsidy IDR8mn for new motorcycle and IDR5mn for conversion. We expect to witness the conversion and lifestyle changes to be smoother by the time price of EV car become more affordable and supporting infrastructure has been well prepared. We also noted there will be 4 huge automotive event this year, including event which dedicated only for Electric Vehicle Show. Maintain Overweight Ceteris paribus, we might see vehicles loan demand to remain stable and witnessing overall 4W sales growth at above 5year historical CAGR prior Covid at 0.4%. Maintain our OW stance on the sector and BUY ASII with SOTP TP IDR7,350/share (10.2x ‘23F PE). Risks to our call includes: a) lower-than-expected 2W and 4W sales growth b) higher and faster than expected rising policy rate transmission c) higher inflation, slowing economic activity and d) deteriorating spending confidence.