Automotive sector

Automotive sector 

News: The Excise Department expects 800K cars to take advantage of the excise tax
rebate under the government's first-time car buyer scheme with tax rebates totaling
Bt60bn. This is higher than the original estimate of 500K units. The department has
already refunded Bt2.4bn to ~31K buyers who purchased cars since September last year
after meeting the one-year ownership requirement.

News: Organizers of the Thailand International Motor Expo 2012 said there were 85,904
orders placed from 30 November to 10 December 2012 - a new record and well in excess
of the target of 50,000. A large 75% of the orders were for models, mainly passenger
cars, that are eligible for the government’s first-time car buyer tax rebate.
Comment:

Three- to six-month wait for delivery. A check of our sources indicates that the
buyers will have to wait three to six months until they get their new car. This
lengthy wait will support the domestic auto market in 2013, particularly in the first
half of the year, since auto sales are counted upon delivery.

Flat or slight growth of domestic auto market in 2013. Automakers expect a
sharp drop in domestic auto sales after the ending of the stimulus policy in 2012. To
combat this, they will engage in marketing plus new models to entice sales in 2013.
Currently, automakers’ views of the 2013 domestic auto market are mixed – some
expect a small increase, others see it as flat and still others look for a small decline
YoY– but all agree that a sharp contraction is unlikely. SCBS’ view is for flat or a
small increase of 5% in 2013 domestic auto sales from 1.4mn units this year. The
length of car delivery plus new car models including an eco-car from Toyota, the
largest automaker in Thailand, will help support the market.

Auto exports key in 2013. In 10M12, auto production focused on the domestic
market at 58% of total production vs. an average of 50% in 2007-11, with the
stimulus program making domestic demand relatively stronger than exports. With
no repeat of the stimulus program in 2013, automakers will turn back to exports in
2013. We expect stronger auto export growth of 17% YoY in 2013 or 1.2mn units
from 1.0mn units this year.

2.6mn vehicles to be produce
2.6mn vehicles to be produced in 2013. We estimate auto production at 2.6mn
units in 2013, up 10% YoY from 2.4mn units in 2012.

SAT is our top pick. In the sector, we see SAT – with company-specific positive
factors – as an outperformer. We expect it to deliver the strongest earnings growth
at 23% in 2013, undergirded by gross margin expansion as the ICP2 casting plant
begins to reduce the costs raised by outsourcing and greater activity in non-auto
part businesses such as tractor parts that will diversify and enhance earnings.

Too early for concern about overseas project. SAT’s share price has
unperformed the market by 7% QTD and we think the share is being pressured by
concerns about losses at its project in Indonesia to produce axle shafts. The project
will be a JV with a local partner and is expected to be finalized in 1Q13. We think it is
too early for concern since it will not be until 2015 that SAT will start production
and recognize operational performance, plus the project is relatively small with
total CAPEX of Bt400mn.