Auto WIN
Regional auto industry highlights
Regional Autos Team
Frank LiAC
(852) 2800-8511
frank.m.li@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Wenwen Wang
(852) 2800-8501
wenwen.x.wang@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Nick Lai
(886-2) 2725-9864
nick.yc.lai@jpmorgan.com
J.P. Morgan Securities (Taiwan) Limited.
Aditya Makharia
(91-22) 6639-3006
aditya.s.makharia@jpmchase.com
J.P. Morgan India Private Limited
Aditya Srinath, CFA
(62-21) 5291-8573
aditya.s.srinath@jpmorgan.com
PT J.P. Morgan Securities Indonesia
Wan Sun Park
(82-2) 758-5722
wansun.c.park@jpmorgan.com
J.P. Morgan Securities (Far East) Limited
See page 157 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Aggregate SAAR sales volume in Asia
Million units
0
5
10
15
20
25
CY01
CY02
CY03
CY04
CY05
CY06
CY07
CY08
CY09
Japan ex . Japan
Source: JAMA, KAMA, CAAM, SIAM, China Motor,
Hotai Motor, Taiwan Economic Journal.
Key items this month
What is changing? We analyze: (1) the downgrade of China’s passenger
vehicle sector to reflect the sharp run-up in their share prices, the possible
negative wealth effect on car sales from the slump in the domestic stock
market, and the looming uncertainty over the renewal of the preferential
policy of vehicle purchase tax cut for cars with an engine size of 1.6 liters
or below; (2) Hyundai Mobis’ move to increase stake in HMC to 21% in a
bid to improve ownership structure and strengthen control over HMC in
Korea; (3) the impact of a deficient monsoon on the Indian auto sector,
through channel checks and field survey of rain deficient areas of North
India; (4) the aggressive auto sales promotion campaign by Hotai Motor
ahead of the lunar ghost month in Taiwan; and (5) the impact of the
proposed changes in Indonesia’s vehicle tax laws.
Information: We discuss: (1) the boost in Korea’s HMC auto sales due to
the “cash for clunker” program in the US; (2) India’s emergence as a
global small car hub, with Nissan shifting its entire small car production
base from the UK to India; (3) the positive impact of potential
postponement of commodity tax cut in Taiwan; and (4) the recovery in
CBU export of cars in June, for the first time this year, in Indonesia.
Non-consensus calls: (1) We believe the expected sales and earnings
recovery in China’s heavy truck sector due to the government’s aggressive
monetary easing and fiscal spending policies have largely been priced in.
To reflect the dual headwinds of peaking fixed asset investment growth
and money supply (M2) growth in China, we downgraded the sector from
Overweight to Neutral. (2) We initiated coverage on the Indian auto sector.
We find that Indian auto companies are trading at the upper end of their
valuation bands. We maintain that the winners will be the market leaders
with strong competitive positions that will benefit from the improving
operating leverage. In the heavy truck sector, we prefer Mahindra &
Mahindra (OW) and Tata Motors (N) over Ashok Leyland (UW). In the
Two-wheeler segment, we like Hero Honda (OW) over Bajaj Auto (N),
which has been losing market share. Maruti Suzuki (OW) remains our top
pick in the Indian passenger vehicle segment.
New vehicle sales volume (SAAR) (in million units
Market CY09E Y/Y (%) Jul-09 Y/Y (%) CYTD09 Y/Y (%)
Japan 4.68 -7.9 4.6 -6.0 4.4 -17.0
China 12.21 30.2 10.9 37.5 11.0 21.9
Korea 1.00 -13.0 1.3 5.7 1.2 -4.7
India 2.44 3.8 2.5 11.3 2.2 -2.9
Taiwan 0.22 -5.0 0.3 19.0 0.25 1.7
Indonesia 0.43 -29.5 0.4 -29.9 0.43 -24.5
Total 21.4 10.8 19.9 13.2 20.1 3.9
Source: JAMA, KAMA, CAAM, SIAM, China Motor, Hotai Motor, Taiwan Economic Journal, Astra International, and J.P.