Automotive Sector - Moderating growth, yet opportunity remains

Due to the high-base effect, rising policy rate trend, and concern over global economic uncertainty, auto industry sales growth is expected to soften in 2023. However, we might see growth potentially to arrive at above 5 years pre-pandemic historical CAGR of 0.4% yoy. Key variables for the industry growth are: (1) interest rate transmission pace (2) consumer spending appetite and (3) 0% down payment, various promotion and installment gimmick from car lease provider. On this backdrop, we maintain Overweight on the auto industry with a BUY rating for ASII at SOTP-based TP of IDR7,350/share, pegged at 10.2x ‘23F PE (vs. current 8.6x ‘23F P/E, below its -1SD 10-year hist mean). 4W sales could reached closed to pre Covid level This year, 4W sales is likely to arrive above KBVS and Gaikindo’s expectation as in 11M22, total 4W sales grew by 19.2% yoy at 942,949 units, or already reached 98.5%/98.2% to KBV’s/Gaikindo’s 2022F. On monthly basis, sales inched down -2.3% mom, yet remain positive at 4.2% yoy, which helped by Honda and Daihatsu solid growths at 62.4% and 30.7% yoy, respectively. Assuming Dec ‘22 4W sales will reach at this year’s monthly average of around 85,681 unit, 12M22 4W sales will reach 1,028,181 units, or 7.5%/7.1% surpassing KBV’s/Gaikindo’s 2022F and already similar with sales figure prior the Covid-19 pandemic which brought 4W sales plunged 48.4% yoy to 532,027 unitsin 2019. Flattish 2W market From 2W market, Nov ’22 sales was at 4.73mn units and grew 1.5% yoy, much better compared to 10M22 negative growth figure of -1.3% yoy. AISI forecasts 2022 2W sales to arrive within the range of 5.1mn-5.4mn units and slightly increased to 5.4mn-5.6mn units in 2023. We expect 2022F sales at 5.098.988 units, while our 2023F numbers is around 10% below AISI’s at 4.901.657 units as we think 2W consumers are more vulnerable to purchasing power and spending behavior during uncertain situation. ASII will continue to dominate 2W landscape competition with 3.48mn units in 2022F and 3.42mn units in 2023F or equal to around 68.4% and 69.9% of market shares. Expecting slower 4W sales in 2023 Despite the ongoing doubt over the strong continuing economic recovery momentum, we think manufacturers will likely to continue launch various new variants to win market share. That said, we think stiffer competition will persist and make dealer as well as car loan provider to continue offering their best deal which eventually become the catalyst for sales in 2023. Gaikindo is guiding 2023F sales at 975k units or 0.85% above our conservative forecast at 966,753 units. Of the total sales, Astra will continue ruling the industry with 56.8% of market share at 549,531 units. While waiting for the 12M22 released, we still maintain our 2022F car sales unchanged, as historically showed Dec mom sales are usually lower mom. However, should any surprise arrived and Dec ‘22 car sales will be higher mom, we still maintain our 2023F car sales growth at 1.1% yoy. 0% down payment has been extended Government has extended zero percent down payment policy to support 2023 auto demand which become a major benefit to industry growth. Nevertheless, key on demand will likely come more from purchasing power and spending confidence which we think might changes on the uncertainty concern that persist recently. Moreover, trend on the ongoing new model launched and promotion from car loan provider should become as a cushion, while transmission on rising policy rate to car loan rate which historically lagged by 3-6 months could provide the industry enough room to book stable sales in 1H23. Maintain our Overweight stance Our main concern lies more on the potential global economic uncertainty. Aside from the above concern, historically data also showed that rising policy rate does not strongly linearly correlate to a decreasing demand or suddenly impacting to lower sales within the same period. Ceteris paribus, we might see 2023 4W sales remain in a stable mood and expect to witness growth at above the 5 year prepandemic historical CAGR of 0.4%. Maintain our Overweight stance on the sector and BUY ASII with SOTP-based TP of 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.