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SECTOR UPDATE REPORT

MNC Sekuritas Research Division April 16, 2018

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4W Sales Grew Slightly Better in Early 2018... Based on data from Gaikindo, 4W sales only grew very slightly, by 1.58% YoY to reach 1.07 million units in FY17. This is lower than the growth in FY16 of 4.88% YoY. Meanwhile during 2M18, 4W sales grew by 5.01% YoY which was around the same growth for 2M17 at 4.74% YoY. Commercial 4W sales increased significantly by 17.22% YoY to reach 235,310 units in FY17 and continued to strongly grow by 24.33% YoY during 2M18, after experienced negative growth in FY13 - FY16. On the other hand, the passenger 4W segment remained flat by -0.01% YoY, sold just 144,054 units in 2M18. Expect on Better Macroeconomic Conditions in FY18E MNCS looks forward to recovery of the Indonesian economy with 5.3% GDP growth in FY18E. In our view, the acceleration of infrastructure development will be followed by improving commodity prices and public purchasing power that have the potential to increase both 2W and 4W commercial vehicles sales. This comes from the evident of average sales in the year before the election, showing an upward trend for 2W and 4W by 21.79% YoY and 20.53% YoY, respectively. Wuling and Mitsubishi: Noteworthy Players Overall, the market share of Wulling car sales grew to 1% in 2M18 since its first establish in July 2017. In addition, Mitsubishi Motors' market share of car sales was 14.40% in 2M18 from 5.90% in 2M17. However, the 4W manufacturers' competition is getting tighter as the market share of Suzuki car sales grows to 11.90% in 2M18 from 8.4% at the same period last year. We assess the number of newcomers impacting sales of 4W ASII and Honda. Increasingly competitive competition in the 4W market will be seen from the margin decline in FY18E. NEUTRAL Outlook with Top Picks: ASII We predict the automotive sector FY18E has the potential to improve along with economic growth. However, the increasingly crowded market players, especially in the LMPV and LSUV segments, overcapacity over 4W production that is not offset by rapidly growing demand, will suppress margins for 4W manufacturers. Therefore, we recommend NEUTRAL for automotive sector with top picks ASII (BUY; TP: Rp9.000) as market leader.

AUTOMOTIVE SECTOR UPDATE New Starts for The Rookies

Sources: Bloomberg, MNCS (as of 12 April 2018)

Ticker Market Cap

(Rp bn) PER (x) EV/EBITDA(x)

Rec. Target Price

(Rp) FY18E FY19F FY18E FY19F ASII 304,639 14.71 13.70 10.89 10.06 BUY 9,000

Research Analyst

Rr. Nurulita Harwaningrum roro.harwaningrum@mncgroup.com (021) 2980 3111 ext. 52237

www.mncsekuritas.id MNC Sekuritas 1-500-899 msec.research@mncsekuritas.id

Sector Update Report | MNC Sekuritas Research Division

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Please see important disclaimer at the back of this report

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Based on data from Gaikindo, 4W sales only grew very slightly, by 1.58% YoY to reach 1.07 million units in FY17. This is lower than the growth in FY16 of 4.88% YoY. Meanwhile during 2M18, 4W sales grew by 5.01% YoY which was around the same growth for 2M17 at 4.74% YoY. The driving factors of national 4W sales growth, especially for the commercial segment, is the recovery of commodity prices, that is oil and coal prices, and also infrastructure development. Commercial 4W sales increased significantly by 17.22% YoY to reach 235,310 units in FY17 and continued to strongly grow by 24.33% YoY during 2M18, after experienced negative growth in FY13 - FY16. On the other hand, the passenger 4W segment remained flat by -0.01% YoY, sold just 144,054 units in 2M18. That decline was in line with the low public appetite for consumption and reflected in the single digit loan growth during 1M18. The catalyst for the growth of national automotive industry actually came from the LTV easing to 75% -80% in 2017. Moreover, Bank Indonesia also reduced its auto loan interest rate to 10.34% at 1M18 from 10.91% at 1M17. Nevertheless, the decline in LTV and interest rates of auto loan has not been able to boost sales of 4W and 2W. This is reflected in the number of motor vehicle loans that grew at single digit number (7.84% YoY) during 1M18 of Rp128.32 trillion.

4W Sales Grew Slightly Better in Early 2018...

Source : Gaikindo, BPS, MNCS

Exhibit 01. GDP and 4W Sales

... While 2W Sales Experienced Decrease to 2M18

On the other hand, 2W sales were down by -0.59% YoY to 922,123 units up to 2M18 (vs. 927,642 units at 2M17). Sales of 2W are still dominated by Honda owned by ASII with a market share of 77% in 2M18. We expect 2W sales to be stagnant at around 5.9-6 million units in FY18E, in line with the prediction of the Indonesian Motorcycle Industry Association (AISI).

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Sector Update Report | MNC Sekuritas Research Division

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Expect Better Macroeconomic Conditions in FY18E

MNCS looks forward to recovery of the Indonesian economy with 5.3% GDP growth in FY18E. In our view, the acceleration of infrastructure development will be followed by improving commodity prices and public purchasing power that have the potential to increase both 2W and 4W commercial vehicles sales. The momentum of election preparation that lasted for FY18E - FY19F is also a positive catalyst for 2W and 4W sales. This comes from the evident of average sales in the year before the election, showing an upward trend for 2W and 4W by 21.79% YoY and 20.53% YoY, respectively.

Source : ASII, BPS, MNCS

Exhibit 02. GDP and 2W Sales

Wulling and Mitsubishi: Noteworthy Players

In the Gaikindo 2017 event, Wulling car sales reached 790 units or grew 2,448.39% MoM. Mitsubishi Motors' car sales totaled 5,615 units or 9.07% MoM. Overall, the market share of Wulling car sales grew to 1% in 2M18 since its first establish in July 2017. In addition, Mitsubishi Motors' market share of car sales was 14.40% in 2M18 from 5.90% in 2M17. The fast growing market share of Mitsubishi Motors was driven by sales of a phenomenal new variant of Xpander at 27,551 units sold in the period from its first launch at September 2017 until February 2018. We see that Xpander could reach its target which is family, especially young millenial family that is looking for something new with acceptable quality at affordable price. However, the 4W manufacturers' competition is getting tighter as the market share of Suzuki car sales grows to 11.90% in 2M18 from 8.4% at the same period last year. This is driven by sales of new variants of Suzuki Ignis – up to16,670 units for the period March 2017-February 2018 with a crossover-style design and a more affordable price than competitors, that is Rp139.5 million for the lowest type. We assess the number of newcomers impacting sales of 4W ASII and Honda which

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Sector Update Report | MNC Sekuritas Research Division

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www.mncsekuritas.id MNC Sekuritas 1-500-899 msec.research@mncsekuritas.id

experienced a 4W market share decline to 47.80% and 13.40% in 2M18, respectively, from 57.60% and 18.30% in the same period last year. Increasingly competitive competition in the 4W market will be seen from the margin decline in FY18E, as happened at GIIAS FY17, where some manufacturers offered discounts of up to Rp20 million.

LMPV and LSUV are Potential to Master FY18E Market

Public interest in types of Low Multi-Purpose Vehicles (LMPV), Low Cost and Green Cars (LCGC) and Low Sport Utility Vehicles (LSUV) in Indonesia continues to increase. Automotive market seemed to be flooded with public demand for these three types of vehicles, which we could see from its evident at Gaikindo's sales data. 4W Indonesia market in 2M18 is still dominated by the LMPV segment, with the Mitsubishi Xpander and Toyota Avanza are head to head to reached first rank from 2M18 sales by 14,481 units and 14,316 units, respectively. For LCGC segment, ASII’s LCGC still at first rank with its market share around 70.7% for 2M18. While Honda HR-V and BR-V monitor showed a positive trend with the fresh face of New Rush from Toyota that enliven LSUV segment. On the other hand, Mazda issued a type of Mazda CX-9 in early 2018, with a configuration capacity of seven (7) passengers. Sales in the LMPV and LSUV segments in FY18E are predicted to increase. This is certainly one of the catalysts for the automotive sector in the hope of a potential increase in volume, but thin margins due to tight competition becomes one aspect that must be considered.

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Mitsubishi Xpander

Toyota Avanza

Suzuki Ertiga

Daihatsu Xenia

Honda Mobilio

Nissan Livina

Source : ASII, BPS, MNCS

Exhibit 03. 7-Seaters Sales at 2M18

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Exhibit 04. 4W Market Share 2M18

Source : Gaikindo

ASII Honda Mitsubishi Suzuki

Honda Yamaha Kawasaki Suzuki TVS

Source : ASII

Exhibit 05. 2W Market Share 2M18

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NEUTRAL Recommendation with Top Picks: ASII

We predict the automotive sector FY18E has the potential to improve along with economic growth. However, the increasingly crowded market players, especially in the LMPV and LSUV segments, overcapacity over 4W production that is not offset by rapidly growing demand, will suppress margins for 4W manufacturers. Therefore, we recommend NEUTRAL for automotive sector with top picks ASII (BUY; TP: Rp9.000) as market leader.

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Exhibit 02. 2W Market Share 11M17

Source : Gaikindo

Overcapacity Concern Indonesia has a production capacity of 4W of 2.19 million units during FY17, supported by the addition of a new factory of Brand Holders Agents (APM) originating from China, Wulling Motos, and Sokonindo Automobile each with production capacity of 120 thousand units and 50 thousand units. Up to FY17, the national automotive industry has produced 1.21 million units of 4W, with a utilization rate at a level of 55.55%. The level of car ownership in Indonesia is still low, in a range of 8-9%, and the potential of a large automotive market with a population of more than 200 million became the main attraction for 4W producers to establish factories in Indonesia. However, with increasing players in the automotive sector generatingincreased competition among 4W producers, projected moderate automotive growth in FY18E could have an impact on declining margins.

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Sector Update Report | MNC Sekuritas Research Division

MNC SEKURITAS RESEARCH TEAM

Edwin J. Sebayang Head of Retail Research, Technical, Auto, Mining edwin.sebayang@mncgroup.com (021) 2980 3111 ext. 52233

I Made Adi Saputra Head of Fixed Income Research imade.saputra@mncgroup.com (021) 2980 3111 ext. 52117

Disclaimer This research report has been issued by PT MNC Sekuritas, It may not be reproduced or further distributed or published, in whole or in part, for any purpose. PT MNC Sekuritas has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; PT MNC Sekuritas makes no guarantee, representation or warranty and accepts no responsibility to liability as to its accuracy or completeness. Expression of opinion herein are those of the research department only and are subject to change without notice. This document is not and should not be construed as an offer or the solicitation of an offer to purchase or subscribe or sell any investment. PT MNC Sekuritas and its affiliates and/or their offices, director and employees may own or have positions in any investment mentioned herein or any investment related thereto and may from time to time add to or dispose of any such investment. PT MNC Sekuritas and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discusses herein (or investment related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies.

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Rr. Nurulita Harwaningrum Banking, Auto, Plantation roro.harwaningrum@mncgroup.com (021) 2980 3111 ext. 52237

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MNC Research Investment Ratings Guidance BUY : Share price may exceed 10% over the next 12 months

HOLD : Share price may fall within the range of +/- 10% of the next 12 months SELL : Share price may fall by more than 10% over the next 12 months

Not Rated : Stock is not within regular research coverage

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