Automotive sector

Automotive sector 

 

January's car production shows first year-on-year growth in 18 months 

Car production volume in January 2015 grew 2.22%yoy and 8.2%mom to 166,260, showing the first year-on-year (yoy) growth in 18 months after shrinking continuously since 2H13. Car exports increased 14%yoy to 92,440, while domestic sales dropped 12.9%yoy to 59,669 since the high season has just ended in late 2014.  

Strong rebound expected in 2015 

We estimate total car production volume in 2015 at 2.1 million or a rise of 11.7%yoy, driven mainly by domestic sales that would grow 7.7%yoy to 950,000. Thailand’s economic recovery in 2015 would help boost purchasing power of consumers and domestic demands for cars. In addition, launches of at least 10 new car models this year and the excise tax restructuring to be effective in 2016 will influence consumers to buy new cars faster. The interest rate downtrend also has positive sentiment on the sector since it means higher purchasing power. Total exports are projected to stabilize at 1.15 million; despite an effect from decreasing revenues of the Middle East countries as a result of falling oil prices, there is compensation from importers in Asia, Oceania, and the US.  

Upgrade to NEUTRAL. Top picks are SAT, AH 

We upgrade our recommendation to NETRUAL and revise up the sector’s P/E ratio to 11-12x (from 10-11x). Fair value of STANLY, SAT, and IRC have been increased earlier; now we revise up AH’s fair value to B18.37 (based on 11x P/E ratio) and IHL to B6.54 (based on P/E ratio of 12x, equivalent to those of SAT, STANLY, and PCSGH, for their higher profitability). The sector’s profit in FY2015 is estimated at B4.18bn, growing 17.26%yoy. Top picks are SAT and AH, whose share prices have an upside of 17% and 18.5%, respectively. SAT would show the strongest profit growth among peers at 20%yoy, while AH has the lowest valuation, with P/BV ratio of only 0.83x and P/E ratio of 9.3x.