Auto Sector

Auto Sector

2H13 auto manufacturing to drop to 1.2 million cars after stimulus runs out
Federation of Thai Industries reported the total production in May 2013 at
231,070 cars, rising by 11.09% yoy, the smallest growth in 13 months. The
automobile export market sold 85,577 finished cars in May, rising by 0.68%
yoy. The national automobile market had the total sales of 111,692 cars,
falling by 3.7% yoy. It was the first month it decreased, after the increasing
growth during the previous 16 months as a result of the government's first
car project ending in December 2013, which stimulated the market by
outstanding car transfers.
- Production in 2H13 seems to fall... 2013 support to grow just 6% yoy
Performance of 5 auto parts companies under our coverage in 2H13 would
still be in line with the recessing automotive manufacturing industry. The
auto manufacturing in 3Q13 is anticipated to touch a record low at 600,000
cars before picking up slightly to 620,000 in 4Q13 due to a motor expo and
an introduction of new cars, as well as a marketing campaign of car
manufacturers to boost year-end sales. Consequently, 2H13 norm profit of
the auto sector is estimated at B1.8bn, decreasing 11% from 1H13.
However, the norm profit in FY2013 would be B3.85bn, still growing 10%yoy,
before reaching B4bn in 2014 or the growth of 5.5%.
- Downgrade to underweight... Choose AH and SAT as top picks
Receding short-term investment stimulus after the first car scheme
terminated and dull sector’s earnings outlook in the next 1-2 quarters are
major factors to stymie the auto sector from outperforming the market. We
reiterate Underweight for the sector. AH is a top pick as it has the highest
upside of 50%. Its PER is the lowest among peers at 6.3x, as well as PBV at
0.9x. Combined with a remaining flood insurance claim of B300m (B735m
already claimed), which is under a negotiating process, AH’s net profit in
2H13 has a good chance to outshine peers.