Astra International (ASII IJ): Weaker-than-expected Nov volume
1) November 2020 4W industry data showed a monthly wholesale volume of 53.8k units (-40.7% y-y, +9.8% m-m), excluding LCGC. The industry LCGC volume was down by 64.8% y-y and 34.6% m-m to 7,244 units. This brings the nationwide wholesale volume to 474,923k units in 11M20 (-49.6% y-y).
2) We have yet to receive details on the November 4W industry retail sales volume. October 2020 industry retail sales volume was up by 6.4% m-m, but still down by 48.1% y-y.
3) In November, Astra’s 4W wholesale volume saw a 48.8% y-y and 7.3% m-m decline, bringing the 11M20 volume to 242k units (-51.1% y-y), and its market share was down to 45.4%. Both Toyota and Daihatsu saw a 5.3% m-m and 18.3% m-m volume decline in November.
1) The recovery in retail sales volume has been slower than our expectations so far, particularly for Astra, hence the slower inventory rebalancing which resulted in a m-m decline in wholesale volume in November, we believe. At the current rate, we believe 4W volumes will likely disappoint the market given a very slow recovery. Interestingly, Honda and Mitsubishi’s retail volume m-m recovery were somewhat stronger than Astra’s, which could be due to the following: 1) Honda and Mitsubishi offered more aggressive 4W dealer promotions through higher pricing discounts; and/or 2) Astra was stricter on the down payment scheme – currently Astra requires 20% down payment for any 4W purchase versus only 10% by competitors. It is also worth noting that Astra’s production utilisation is currently still at less than 50%, and we think it would be challenging for Astra to ramp up its utilisation rate amidst the continued weak consumption. All in all, we think a meaningful 4W volume recovery might not be seen until 2H21 with updates on vaccines, an economic recovery and improvement in consumer confidence.
2) Our forecasts of c.45% y-y and 40% y-y declines in the industry 4W and 2W wholesale volumes, respectively, are too aggressive at the current run rate, although we still expect a slight m-m industry volume recovery in December. Dealers’ inventory levels remained unchanged in November at around 1.5-2 months, based on our checks. Furthermore, we expect a more aggressive dealership discount especially nearing year-end, in attempt to reduce old inventories.
3) Interestingly, despite the weak volumes, Astra’s financial services divisions’ performance were not as bad as we expected – its profit decline was less severe than expected and margins saw only a slight decline too. A recent call with management also suggested that Toyota Astra Finance (TAF – 4W financing) expects a conservative auto financing loan growth of 20% y-y in 2021, still below the pre-Covid level, while Federal International Finance (FIF - 2W financing) only expects 10-12% y-y loan growth next year.
Maintain HOLD with unchanged TP of IDR5,300/share. We reiterate our HOLD stance on ASII on valuation and the lack of strong catalysts ahead. Astra’s auto business may not see any meaningful turnaround until 2H21, in our view, while its improved CPO performance is not sufficient to offset the weakness in the auto and heavy equipment businesses. Downside risks to our view include further deterioration in the economy and a longer-than-expected PSBB. Upside risks are a better-than-expected GDP recovery in 2021 and recovery in global commodity prices.