Automotive sector

Automotive  sector

 

- Strong auto export compensates for weak domestic market 

Domestic auto market has slowed down from 2014. Since purchasing power has been weakened by low agricultural product prices and high household debt, 4M15 domestic car sales fell by 15.3%yoy to 251,844. However, 4M15 car export grew by 13.6%yoy to 410,362, mainly owing to 51.1%yoy growth in export to Oceania, Europe, and North America (40% of total export). Overall, 4M15 total car production rose by 0.42%yoy to 646,936. The auto sector's earnings are not likely to be very strong in 2Q15 because there was a long holiday in April and customers have been waiting for new models. Also, old models have been shuffled, thus decreasing car production. 

- New model to boost profit remarkably in 2H15 

2H15 profit is projected to grow remarkably since auto companies would produce new-model cars at full capacity and demand from export markets have been growing. Domestic demand is also anticipated to grow because the economy is expected to improve and more customers would buy new cars before car prices increase as a result of excise tax restructuring starting in 2016. We estimate car production to grow by 11.7%yoy to 2.1 million in 2015. 

- Top pick: SAT. BUY IRC, AH 

We maintain the auto sector's earnings forecast, projecting FY2015 net profit to grow by 21%yoy to B4bn. Our recommendation is NEUTRAL. Top pick is SAT(FV@B22) which will benefit from the new pickup model, thus boosting SAT's profit significantly, and its P/E ratio of 10x is lower than the sector's average of 11.7x. We also recommend BUY for IRC([email protected]) that would enjoy higher gross profit margin thanks to low rubber price and AH([email protected]) with 9.4x P/E ratio and 0.76x P/BV ratio, the least expensive in the sector.