AUTOMOTIVE SECTOR UPDATE - 22 June 2021

AUTOMOTIVE SECTOR UPDATE

Striving to Get Back on Track

Positive Growth Quarterly Performance in 1Q21

• ASII IJ posted consolidated revenue in 1Q21 of IDR51.70 trillion or -4.26% YoY (vs IDR54.00 trillion in 1Q20) but compared to 4Q20 ASII's revenue increased by +15.67% QoQ (vs IDR44.69 trillion in 4Q20).
• Cost of goods sold also increased from IDR35.45 trillion in 4Q20 to IDR41.10 trillion in 1Q21 but decreased by -1,94% YoY (vs IDR41.92 trillion in 1Q20).
• ASII posted a net profit of IDR3.73 trillion in 1Q21 which rose by of +75.44% QoQ (vs IDR2.13 trillion in 4Q20) and compared to 1Q20, it fell by -22,49% YoY (vs IDR4.81 trillion in 1Q20).
• The largest revenue contribution came from by the automotive segment by 40.35% where in 1Q21 automotive sector revenue was recorded at IDR20.86 trillion, an increase of +13.83% QoQ (vs IDR18.32 trillion in 4Q20) while on a yearly basis it still drop by of -12.19% YoY (vs IDR23.76 trillion in 1Q20).
• In addition, the second largest revenue came from the heavy equipment sales segment (UNTR) of 34.62% (vs 31.06% in 4Q20) recorded an increase in sales from IDR13.88 trillion in 4Q20 to IDR17.89 trillion in 1Q21 (+28.94% QoQ) while it fell by -2.27% YoY compared to 1Q20 which stood at IDR18.31 trillion.

 How Effective is the PPnBM Implementation 

• Domestic car sales experienced a significant increase after the government granted a 100% relaxation of PPnBM for new cars <1,500 cc on Mar-21. In Mar-21, car sales were recorded at 84,910 units, up 72.57% MoM (vs 49,202 units in Feb-21).
• However, this increase did not last long, where in Apr-21 and May-21 there was a decrease of -7.07% MoM (78,908 units in Apr-21) and -30.53% MoM (54,815 units in May-21).

 So What’s Next? 

• The government has extended the 100% PPnBM discount for new cars <1,500 cc until August 2021 which previously was only until May 2021, this aims to improve the national economy which is depressed by the Covid-19 pandemic.
• We assess that this policy has succeeded in increasing car sales in the March-May 2021 period, but it seems that the government is still not satisfied with this achievement, where the level of domestic car sales decreased by 30.5% MoM or to 54,815 units in May-21 (vs. 78,908 units in Apr-21), we see this decline driven by lower demand caused by lower production capacity due to manufacturers experiencing shortages of semiconductor chip components for car.
• Until May-21 total domestic production was recorded at 413,116 units or increased by +17.38% YoY (vs 351,954 units 5M20). Despite the increase, we therefore estimate that FY21E car sales will not reach the pre-pandemic level of 1 million units this year.

Potential Inflow from Free Float Weighting 

• The Indonesia Stock Exchange will reset the index weighting in the Indonesian capital market starting in early July 2021 using the free float method, within several stages: 1) 30% free float; 2) 60% free float; 3) Full free float.
• Meanwhile, the IDX gave an adjustment period for the application of Free Float, where the implementation of the JCI will begin in early Oct-21. We assess that the change in the implementation of the free float will have a significant impact on the stocks that are affected by a significant reduction or increase.
• For ASII, when calculated using the full free float, the weighting of the JCI will increase from the initial 2.95% to 4.28% with 100% Free Float weighting. We believe this will be very beneficial for ASII as it’s weight increase quite significantly and remains as the top 5 movers of IHSG. This also would attract investors to chip in, resulting in an inflow as ASII will be more influential to IHSG.

Maintaining NEUTRAL Outlook with Top Pick ASII (BUY; TP: IDR7,480)

We still maintain our NEUTRAL outlook for the automotive sector where the 100% PPnBM relaxation policy which is extended until August-21 can increase domestic car sales in FY21E, although it is still quite difficult to reach pre-pandemic levels with the return of Covid-19 cases hike in Indonesia so that it will have an impact to people's purchasing power. Our top pick remains ASII (BUY TP: Rp7,480) where ASII managed to increase car sales in the period March to May 2021 and still holds the largest market share. ASII is currently traded at –1STD (5-year Average) with PE at 13.21x.

ASII