Facing Adversity
A Step Up in Monthly Vehicle Sales
Vehicle sales and production have experienced a significant increase due to the government's loosening of social restrictions in Indonesia. This is reflected in the 4W sales and production of June 2020 which rose respectively by 255%/571% MoM. Though on a yearly basis it still experienced a substantial decrease of -78.82%/-74.55%, followed by the continuously declining 2W sales by -79.51% YoY in June (vs -78.38% YoY in May). In addition, ASII's market share rose to 38% in June 2020 from 31% in May 2020 while LCGC's market share fell to 60% in June 2020 from 69% in May 2020. We see that with the rise in market share,
ASII still dominates with an average of 53.46% in 6M20.
Honda’s Problematic Fuel Pump
The management of PT Honda Prospect Motor recalled several types of cars to have the fuel pump repaired starting on 15 July until September 2020. This also happened to other car manufacturers such as
Mitsubishi at the end of June 2020. The recall was done to improve safety and quality for consumers. Some types of cars included for repairs are Brio, Mobilio, City, Civic, Accord, BR-V, HR-V, CR-V with model years between 2017 to 2019. This policy is done to prevent the possibility of the engine not starting or come to a sudden stop caused by the fuel pump. In this case, the company said that in total there were around 85,025 units to be recalled. We consider this policy will further burdened the company by providing improvements as it will slash the net profit while increases the company’s cost, but this needs to be done to give the highest services and quality possible. Furthermore, since the easing of large scale social restriction, car manufacturers in Indonesia have reopened their factories, followed by Astra and
Honda which opened on June 2020.
Government Faced Difficulties on Developing Electric Vehicles Domestically
The government has issued several regulations for the development of electric battery vehicles in Indonesia through Presidential Regulation no. 55/2019. Meanwhile, the numbers of electric vehicles that are currently operating are still below the target set by the Ministry of Industry. This is due to a number of challenges, such as: 1) E-Taxi vehicle sales is only 230 units as of June 2020 only reaching 0.15% of 150,000 units target in FY20E; 2) E-Motorcycles sales on June 2020 only reaching 1,500 units or 0.19 % of the 400,000 units target in FY20E; 3) E-Bus sales realization is only 3 units as of June 2020 (3% of 100 units target in FY20E). Other challenges faced are fiscal incentives due to no tax exemption, significant costs on companies to improve electricity infrastructure, inadequate public charging points, lengthy licensing processes and lack of consumer awareness of the benefits from electric vehicles.
Maintaining NEUTRAL Outlook with Top Pick ASII (HOLD; TP: IDR5,500)
We consider that the auto sector in FY20E will stagnate, this is reflected on vehicle sales whose growth is still below the previous year due to the Covid-19 outbreak which resulted in the substantial drop on vehicle sales and production. In addition, the recall on several car manufacturers caused by the faulty fuel pump will further burdened the automotive industry, though we hope that there will be a recovery from
the electric vehicles development in Indonesia. We maintain our NEUTRAL recommendation for the automotive sector with the stock recommendation of ASII (HOLD, TP: IDR5,500) due to its resiliency in remaining as the largest market share in Indonesia. ASII is currently traded at -1.44 STD (3-years Average) with PE at 9.83x.
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