Good morning,
Auto
& Autoparts – Still a Far Distance From Indonesia’s Industry Roadmap
We believe EVs are
still far from the auto industry roadmap in Indonesia. The country still
focuses on developing LCGCs and rural freight cars, while incentives for EV
development are still unclear. LCGC and rural freight cars technology is not
that advanced, but have a high proportion of local components. LCGC sales
accounted for 22% of national 4W vehicle sales last year, vs 16% in 2015.
This year, the LCGC sales contribution is likely to increase further to 25%.
Meanwhile, rural freight cars are scheduled to be launched in Indonesia in
August.
¨ The largest market
in the region.
In 2016, there were 128m vehicles in Indonesia, which comprised 105m
two-wheelers (2W) and 24m four-wheel (4W) vehicles. Meanwhile, 75% of
motorcycles in the country are scooters with small engines (110-125cc). The
remainder consists of cub and sport-type motorcycles. 4W vehicles in
Indonesia, in the meantime, comprise 14m passenger cars, 7m commercial cars
and 3m buses. This year, 4W national sales are estimated to reach 1.1m units,
with a national production capacity of 2.1m units pa. FY17 motorcycles sales
may reach 6m units, with a national capacity production utilisation rate of
around 70%.
¨ EVs are still far
from the national industry roadmap. We think it will take a long time before
Evs outnumber conventional cars in Indonesia. Optimistically, and assuming
all cars sold are EVs (1.1m sold pa), it would take more than 20 years to
replace the current number of conventional cars with EVs. We believe it is
unlikely that EV sales could reach 1m units pa, because production costs are
very high, ie thrice the cost of conventional vehicles. Furthermore, EVs are
still far from the national industry roadmap, where incentives for EVs are
still unclear and its development seems to be slow. The latest update on the
EV industry came when President Joko Widodo met with Toyota Motor Corp
president Akio Toyoda. After the meeting, the President said that if EV
development falters, hybrid vehicles may be the alternative. This is hardly a
positive indication for the EV industry in Indonesia.
According
to the Indonesia Auto Industry Association (Gaikindo), the domestic
automotive industry has not yet been developed to include advanced
technology- EVs. Indonesia’s auto industry still focuses on building
affordable cars with modest technology, with high local content, eg low-cost
green cars (LCGCs). In addition, at the moment, Gaikindo is developing rural
freight cars which aims to provide cheap and safe vehicles to farmers in
rural areas. Initial production of cars for the rural market is scheduled to
kick off in Aug 2017.
¨ Higher sales
contribution from LCGCs. LCGC is the main driver of national vehicles sales
growth thanks to its affordable selling prices. Its sales contribution to
total 4W vehicle national sales increased to 22% in FY16 (from 16% in FY15).
In our calculation, this is likely to increase further to 25% in 2017.
Cars enjoying the fastest sales growth are
Astra International’s (Astra) LCGCs, such as Toyota’s Calya and Agya, and
Daihatsu’s Sigra and Ayla – which accounted for 28% of Astra sales in 2016.
Its retail (on-the-road) selling prices are low, at around USD6,000-11,250
per unit. EVs – with much higher production costs than conventional cars –
would not beat LCGC’s position in Indonesia easily.
¨ Astra
is our Top Pick.
Astra would be the key beneficiary of an increase in domestic vehicles demand
(both 4W and 2W). For 4W vehicles, its market share increased to 56% in 2016
(2015: 50%), while its 2W vehicle market share rose to 74% (2015: 69%). This
year, we expect its market shares to grow further, thanks to its strong
position in the domestic vehicle market as well as its extensive distribution
network. Our DCF-based TP is IDR9,850 (20x/17x FY17/18F P/Es). (Andrey Wijaya)
Link
to daily report: Indonesia Morning Cuppa 300517
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Regional Strategy:
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Regional Strategy –
The Dawn Of E-Mobility
We are at the dawn
of e-mobility, with many questioning whether this revolution would bring an
end to the oil era. In this report, we delve into the technology of EVs, the
possibilities of its mass proliferation as well as the constraints that are
holding back the global adoption of EVs. Even if the world wants to fully
switch to the EVs, currently there are not enough facilities available to
accommodate such a surge in demand. We believe fossil fuels would still
represent the fuel of choice at least for the next two decades.
¨ The longer-term
trend seems clear.
The market share of oil in the transportation sector, looks set to fall from
the current level of approximately 94% to possibly 85% by 2040F. We estimate
the electric vehicles (EVs), be it BEV/PHEV/HEVs, to take from oil’s dominant
market share in the sector. However, the magnitude of such a change remains
in flux and it depends on the cost competitiveness of the alternatives. Keep
in mind that the efficiency and emission for the internal combustion engine
(ICE) vehicle are improving constantly. Thus, the battle has begun but for
now, we believe the ICE vehicles have the upper hand.
¨ The technology is
moving forward nicely. We estimate that before 2020F, the EVs would reach a
price and range parity with the ICE vehicles. In the meantime, we expect
battery costs to decline further and energy density to make the driving range
comparable to that of ICE vehicles. There are however, several hurdles. The
charge time remains an obstacle and the public charging post for EVs is still
in its infancy. Without a sufficient charging infrastructure and a
standardisation of port dimensions, the mass proliferation of EVs may be hard
to attain globally in the near term.
¨ We highlight China
as one of the world leaders in EVs, with c.600k units on the road (0.5% of
total vehicles in China). The Chinese Government has a strong incentive to
promote EVs due to the severe pollution in the country and to reduce its
dependence on imported oil. However, we believe that any environmental
improvement and oil demand dent that could come from increased EVs
utilisation would be more than offset by the popularity of SUVs over the
coming years.
¨ The EVs in the ASEAN
countries:
Singapore began testing the feasibility and viability of EVs in 2009. It
currently has 33 EVs (0.005% market share) on the roads, while it is looking
to increase its public transportation fleet rather than private fleet in the
future. Thailand’s EV industry is in its infancy, with 100 EVs (0.001% of
current market share) on the road. The Thai Government has recently announced
its long-term plans to have 1.2m EVs by 2036F. Malaysia is targeting 100k EVs
(0.7% market share) by 2020F. However, it is unlikely that EVs and hybrids
would make any serious headways in Malaysia, without an incentive from the
Government. Finally, in Indonesia we believe there is no future for EVs as
cost remains the key focus there.
¨ Top Picks under the
EV theme are
Geely Automotive, Avi-Tech Electronics, Bangchak Corporation and Astra
International, all currently with BUY recommendations. We have a NEUTRAL
recommendation on two other companies that also have a direct exposure to
this theme: Great Wall and BYD. (Kannika
Siamwalla, CFA, Tony Fei, CFA)
Link to report: Regional Strategy: The Dawn Of E-Mobility
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Company Update:
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Nippon Indosari to
undertake rights issuance
Nippon Indosari
(ROTI IJ, BUY, TP: IDR1,870) is announcing a pre-emptive right issue for
1.15bn new shares (22.7% of current issued and fully paid capital). The
shareholder that opt for not exercising the rights will be subject to
dilution of ownership as much as 18.52%. Rights issue proceeds will be used
for business expansion and working capital with its exercise price yet to be
determined. The company will issue the prospectus for greater details on the
rights issue plan, and this corporate action is subjected to EGM approval on
7 July 2017.
Our DCF-based TP of
IDR1,870 (21% upside), implying 25x FY17F P/E. (Andrey
Wijaya)
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Media Highlights:
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Corporate
Banks’ net interest margin stands at 5.38%
Waskita targets IDR7trn from two divestment
packages
Jasa Marga looks to raise IDR3trn from toll
road securitization
Golden Mines Energy to acquire coal
concession for USD59.27mn
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Our
Recent Publication:
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Results Review: XL Axiata – Playing
Catch-Up
Link to report: XL
Axiata : Playing Catch-Up
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Not-Rated Note: Mitra Pinasthika Mustika –
Structural Reform Is Underway
Link to report: Mitra
Pinasthika Mustika : Structural Reform Is Underway
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Company Update: Mitra Adiperkasa – Going
For Full Earnings Potential
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Company Update: Bumi Serpong Damai –
Maintains a Solid Performance
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Company Update: Bank Rakyat Indonesia –
Growing Bigger Through Micro Lending
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Company Update: Indosat – Hoping For Yield
Improvement
Link to report: Indosat – Hoping For
Yield Improvement
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Strategy: Finally Investment Grade Status
Link to report: Finally
Investment Grade Status
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Economics Update: BI Continues To Hold Key
Policy Rate In May
Link to report: BI
Continues To Hold Key Policy Rate In May
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Company Update: Aneka Gas Industri –
Execution Setback But Its Growth Story Remains Intact
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Sector Update: Coal Mining – Welcoming New
Members Into MSCI Small Cap Index
Link to report: Welcoming
New Members Into MSCI Small Cap Index
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Economics Update: April Exports and Imports Moderate
Link to report: April
Exports And Imports Moderate
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Results Review: Tower Bersama
Infrastructure – No Suprises
Link to report: Tower
Bersama Infrastructure : No Surprises
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
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