sector update report - mncsekuritas.id filethat was intended for one of taxi companies in indonesia....

Unexpected Position from Newcomers in LMPV… the increasing competition of 4W manufacturers in the LMPV segment resulted in a change in the role of the players, where Toyota Avanza was overtaken by Mitsubishi Xpander during 9M18. Consumer’s appetite for Mitsubishi Xpander had taken its market share to 30.58% (66,125 units) from LMPV segment in 10M18. As can be seen from average sales per month in 10M18, Mitsubishi Xpander sales per month (6,613 units/month) is head to head with Toyota Avanza sales with 6,794 units/month. Meanwhile, Toyota Avanza could take over to first place again (31.42% market share with 67,940 units) after was beaten by Mitsubishi Xpander in 10M18, with Toyota Avanza Transmover sales in Oktober 2018 that was intended for one of taxi companies in Indonesia. ...As Well As The Increasingly-Crowded LSUV Segment Amid tight LMPV segment competition, Brand Holder Agent compensates it by increasing LSUV sales which grew by 39.81% YoY in 10M18. All New Rush launched by Toyota managed to record sales of 45,156 units during 10M18, and became a market leader with market share of 42.39%. All New Terios by Daihatsu also booked shining performance with 157.54% YoY growth in 10M18, reached 23.62% market share for LSUV segment. This new LSUV (Rush Toyota and Terios Daihatsu) from Astra International (ASII), successfully marked its position with 66.01% market share of LSUV segment (vs 34.01% in 10M17) which surpassed all-time favourite LSUV from Honda. We see that LSUV players who are also increasing in numbers, will tighten the competition in its segment. Commercial Vehicles as Kings of Growth Throughout 10M18, Commercial Vehicle (CV) sales experienced significant growth, namely, 18.93% YoY to 229,863 units which supported 4W sales growth. This can be seen from the composition of commercial vehicles which had touched its lowest point in FY16, which was 19% of total 4W sales, growing to 24% in 1H18, whereas during the commodity boom, the composition of commercial vehicles reached 27%-30%. Infrastructure development, such as toll roads and overpasses, had already completed, which contributed to inter-city and intra-city traffic, especially those related to logistics. This can be seen from Indonesia's Logistic Performance (LPI) in 2018 at 3.15, reaching 46th rank from 160 countries. LPI rating was significantly rose, compared to 2016 which was at 2.98 in 63rd position. We see that CV will continue to book strong performance as logistics activities is still growing. Recommendation: NEUTRAL with Top Pick: ASII (HOLD; TP: IDR8,500) The automotive sector has the opportunity to grow, supported by an increase in online transportation and the commercial vehicle segment, along with good commodity prices, infrastructure development, and e-commerce development. However, we see tight competition in both the LMPV and LSUV segments, as well as fluctuations in the Rupiah exchange rate and rising interest rates, could potentially hamper recovery of the automotive sector. Therefore, we recommend NEUTRAL with ASII as selected shares (HOLD; TP: IDR8,500).

AUTOMOTIVE SECTOR UPDATE Who Will Win The Race?

Sources: Bloomberg, MNCS (as of November 22, 2018)

Ticker Market Cap

(Rp bn) P/E (x) PBV (x)

Rec. Target Price

(Rp) FY18E FY19F FY18E FY19F ASII 342,086.0 14.88 13.74 2.00 1.82 HOLD 8,500

Research Analyst Ikhsan Hadi Santoso [email protected] (021) 2980 3111 ext. 52235

SECTOR UPDATE REPORT

MNC Sekuritas Research Division | November, 22 2018

Research Analyst Rr. Nurulita Harwaningrum [email protected] (021) 2980 3111 ext. 52237

Please see important disclaimer at the back of this report

www.mncsekuritas.id MNC Sekuritas 1-500-899 [email protected]

Sector Update Report | MNC Sekuritas Research Division

Throughout 10M18, four-wheelers (4W) sales showed improvement with 7.18% YoY growth that reached out 962,697 units. However, this growth was higher than in 10M17, with 2.66% YoY growth. 4W sales growth was encouraged by commercial vehicle (CV) sales, which was significantly boosted by 19.79% YoY during 10M18. High demand of CV were in line with good price of commodities (coal and oil), and also infrastructure that has been operated in several points throughout Indonesia, especially Java and Sumatra. Meanwhile, passenger vehicles (PV) sales was improved by 3.95% YoY along with economic growth (5.17% in 3Q18) and several new model with mid-low range price from PV players, both from incumbents and new comers.

After Festive Cycle…

Sources: Gaikindo, MNCS

Unexpected Position from Newcomers in LMPV…

LMPV market is still favourable for PV’s customer as seen from numerous variants from its segment. Toyota Avanza is top player in the LMPV segment which is ranked first from other types. However, the increasing competition of 4W manufacturers in the LMPV segment resulted in a change in the role of the players, where Toyota Avanza was overtaken by Mitsubishi Xpander during 9M18. Consumer’s appetite for Mitsubishi Xpander had taken its market share to 30.58% (66,125 units) from LMPV segment in 10M18. As can be seen from average sales per month in 10M18, Mitsubishi Xpander sales per month (6,613 units/month) is head to head with Toyota Avanza sales with 6,794 units/month. Meanwhile, Toyota Avanza could take over to first place again (31.42% market share with 67,940 units) after was beaten by Mitsubishi Xpander in 10M18, with Toyota Avanza Transmover sales in Oktober 2018 that was intended for one of taxi companies in Indonesia. We see that continuous demand for low-price range for LMPV segment (such as Transmover and Wulling Confero) from taxi companies in Indonesia with its wide capacity and low maintenance as an alternative to replace sedan, will contribute to LMPV sales. On the other hand, Wulling Confero, enjoyed massive sales during 10M18, with a market share of 3.91% of the LMPV segment. LMPV sales in 10M18 showed improvement with 9.27% YoY growth as well as the increasing number of LMPV players. While it indicates favourable consumer’s appetite for LMPV, we see that it will still exert a pressure on margins of LMPV producers.

Exhibit 01. LMPV Market Share Period 10M18

Mitsubishi Xpander

31%

Toyota Avanza

31%

Suzuki Ertiga12%

Daihatsu Xenia12%

Honda Mobilio

10%

Wuling Confero

4%




Amid tight LMPV segment competition, Brand Holder Agent compensates it by increasing LSUV sales which grew by 39.81% YoY in 10M18. All New Rush launched by Toyota managed to record sales of 45,156 units during 10M18, and became a market leader with market share of 42.39%. All New Terios by Daihatsu also booked shining performance with 157.54% YoY growth in 10M18, reached 23.62% market share for LSUV segment. This new LSUV (Rush Toyota and Terios Daihatsu) from Astra International (ASII), successfully marked its position with 66.01% market share of LSUV segment (vs 34.01% in 10M17) which surpassed all-time favourite LSUV from Honda. Seeing strong public interest in LSUV, DFSK as 4W producer from China, also enlivened the market. DFSK launched the Glory 580 in May 2018 with prices starting from IDR245.90 million, it boasted premium SUV quality within the LSUV price range (IDR200-≤IDR300 million). Therefore, LSUV players who are also increasing in numbers, will tighten the competition in its segment.

Exhibit 02. The New DFSK SUV: Glory 580

Source: Gaikindo

...As Well As The Increasingly-Crowded LSUV Segment




The use of online transportation is increasing along with the development of technology. This can be seen from users of online transportation applications (Go-Jek, Grab, and Uber) who in FY17 reached 15.73 million, while Go-Jek driver partners reached 900,000 with more than 100 million transactions per month. The expansion of online transportation is in line with 2W sales, which increased by 8.80% YoY to 4.72 million units during 9M18. Since April 2018, 2W sales growth finally scored positive growth after from FY15 saw negative growth. In addition, online-based 4W vehicles are also in demand by the consumer, hence Toyota focuses on developing Transmover (the cheapest variant of Avanza) as a commercial vehicle (taxi), especially for Blue Bird. Not only Toyota, Wuling has also sold Confero automobiles to Taxi Express. We consider that the expansion of online transportation will also help drive sales of low-class LMPV and 2W in order to fill the gap between the need for transportation and the availability of public transportation.

Exhibit 04. 2W Market Share Period 9M18 vs 9M17

Opportunities in Online Transportation

Astra74.9%

Others25.1%

Astra74.6%

Others25.4%

9M17 9M18

Toyota Rush42%

Daihatsu Terios24%

Honda HR-V 23%

Honda BR-V8%

Suzuki SX4 S-Cross

2%

Chevrolet Trax1%

Nissan Juke0%

Source: ASII

Sources: Gaikindo, MNCS



Exhibit 03. LSUV Market Share Period 10M18


Throughout 10M18, Commercial Vehicle (CV) sales experienced significant growth, namely, 18.93% YoY to 229,863 units. Along with the strengthening of commodity prices (oil and coal), CV sales supported national 4W sales growth. This can be seen from the composition of commercial vehicles which had touched its lowest point in FY16, which was 19% of total 4W sales, growing to 24% in 1H18, whereas during the commodity boom, the composition of commercial vehicles reached 27%-30%. Infrastructure development, such as toll roads and overpasses, had already completed, which contributed to inter-city and intra-city traffic, especially those related to logistics. This can be seen from Indonesia's Logistic Performance (LPI) in 2018 at 3.15, reaching 46th rank from 160 countries. LPI rating was significantly rose, compared to 2016 which was at 2.98 in 63rd position. The State Strategic Project (SSP) for toll roads and 920.64 km of long flyovers, was targeted for completion in 2018-2019. Therefore, as well as growing e-commerce, has the potential to encourage to boost domestic logistics, hence demand for CV. The growth of CV sales which reached 18.93% YoY during 10M18, was driven by truck and pick-up segment sales with 31.34% YoY to 94,251 units. Demand for trucks experienced a significant increase, therefore the composition of the truck segment reached 41% of total commercial vehicles in 10M18 (vs. 37% in 10M17). Meanwhile, the pickup segment with the largest composition (52% of the total CV) experienced 11.31% YoY growth to 119,202 units. The double cabin segment also grew significantly by 19.94% YoY to 13,482 units. During 10M18, Mitsubishi (Motors and Fuso) managed to become market leader with 36% market share. We see that CV will continue to book strong performance as logistics activities is still growing.

Commercial Vehicles as Kings of Growth

Exhibit 05. Development of 2W, 4W and GDP Sales

Sources: Gaikindo, ASII, Bloomberg

4.4

4.5

4.6

4.7

4.8

4.9

5

5.1

5.2

5.3

5.4

-50%

-30%

-10%

10%

30%

50%

70%

90%

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov

-14

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Nov

-16

Jan-

17

Mar

-17

May

-17

Jul-1

7

Sep-

17

Nov

-17

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep-

18

Growth Sales Car (LHS) Growth Sales Motorcycle (LHS) GDP (RHS)



Will More Car Manufacturer to Come?

Eight out of every 100 Indonesians own a car, which is very low compare to Thailand (24:100 ratio) and Malaysia (40:100 ratio). That makes Indonesian as a target for car manufacturer around the world. As more infrastructure has been established, the needs of transportation will also grow which can be seen from commercial car growth in 10M18. Meanwhile, vehicle market in China has been stagnant along with economic slowdown and trade war, which can be seen from China sales decline in 11.45% YoY in Oktober 2018. Therefore, China government is willing to give stimulus to boost automotive sales, such as cut tax for automotive. China’s car manufacturer also try to expand its business to other country, such as Indonesia. China’s car sales in Indonesia such as Wuling and DFSK that achieve good market in Indonesia, will potentially attract other China’s car manufacturer to market its product in Indonesia. Therefore, we see that passenger car will be more crowded, hence price competition remains tight.

Exhibit 07. Commercial Vehicle Segment 10M18 vs. 10M17

Source: Gaikindo

2%

55%37%

6%

Bus PU Truck Double Cabin

10M17

1%

52%41%

6%

Bus PU Truck Double Cabin

10M18

8,287

14,257

23,478

35,087 36,055 34,043

36,681

9,222

19,701

31,797

35,671 38,337

44,112 44,861

Toyota Isuzu Hino Daihatsu Mitsubishi MotorsMitsubishi Fuso Suzuki

10M17 10M18


Source: Gaikindo



Exhibit 06. Commercial Vehicle Sales 10M18 vs. 10M17


The automotive sector has the opportunity to grow, supported by an increase in online transportation and the commercial vehicle segment, along with good commodity prices, infrastructure development, and e-commerce development. However, we see tight competition in both the LMPV and LSUV segments, as well as fluctuations in the Rupiah exchange rate and rising interest rates, could potentially hamper recovery of the automotive sector. Therefore, we recommend NEUTRAL with ASII as selected shares (HOLD; TP: IDR8,500).

Recommendation: NEUTRAL with Top Pick: ASII (HOLD; TP: IDR8,500)

Exhibit 08. ASII P/E Band Period 3 Years

Source: Bloomberg as of November 21, 2018

12

14

16

18

20

22

24

26

28

Nov-

15De

c-15

Jan-

16

Feb-

16M

ar-1

6

Apr-

16M

ay-1

6

Jun-

16Ju

l-16

Aug-

16

Sep-

16

Oct

-16

Nov-

16

Dec-

16

Jan-

17

Feb-

17M

ar-1

7

Apr-

17M

ay-1

7

Jun-

17

Jul-1

7

Aug-

17

Sep-

17O

ct-1

7

Nov-

17De

c-17

Jan-

18

Feb-

18M

ar-1

8

Apr-

18

May

-18

Jun-

18Ju

l-18

Aug-

18

Sep-

18O

ct-1

8

P/E ASII MEAN STD-1 STD-2 STD+1 STD+2

25.47

22.22

18.97

15.71

12.46

The weakening of the Rupiah against the US dollar which reached >IDR15,000, has the potential to increase imported raw materials prices. Consequently, it will certainly have an impact on increasing COGS, hence vehicle price itself. On the other hand, the rates of the vehicle loan had dropped by -25bps YoY to 10.28% in 9M18. However, with lower interest rates, PV sales only grew by 3.95% YoY to 732,834 units in 10M18. Currently, banking sector is going through tighten liquidity, hence vehicle loan will not be given easily. We foresee that fluctuations in the Rupiah exchange rate which tends to weaken and the upward trend in lending rates which 7-DRR is at 6% in 11M18 that is going to continue in FY19F with 50bps increase in 7DRR, tighten liquidity, will be a challenge for the recovery of national vehicle sales, especially for passenger vehicles.

Risk of Rupiah Exchange Rate Fluctuations and Interest Rate Increase




MNC SEKURITAS RESEARCH TEAM

MNC Research Investment Ratings Guidance BUY : Share price may exceed 10% over the next 12 months

HOLD : Share price may fall within the range of +/- 10% of the next 12 months SELL : Share price may fall by more than 10% over the next 12 months

Not Rated : Stock is not within regular research coverage

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Disclaimer This research report has been issued by PT MNC Sekuritas, It may not be reproduced or further distributed or published, in whole or in part, for any purpose. PT MNC Sekuritas has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; PT MNC Sekuritas makes no guarantee, representation or warranty and accepts no responsibility to liability as to its accuracy or completeness. Expression of opinion herein are those of the research department only and are subject to change without notice. This document is not and should not be construed as an offer or the solicitation of an offer to purchase or subscribe or sell any investment. PT MNC Sekuritas and its affiliates and/or their offices, director and employees may own or have positions in any investment mentioned herein or any investment related thereto and may from time to time add to or dispose of any such investment. PT MNC Sekuritas and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discusses herein (or investment related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies.

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