Key items this month
• What is changing? We analyze: (1) the possibility of China renewing
the vehicle purchase tax cut policy for vehicles with an engine size of
1.6 liters and below; (2) our sales volume/earnings outlook change for
Korea’s Hyundai Motor on stronger-than-expected 3Q09 earnings; (3)
the recovery of the Indian heavy commercial vehicle industry based on
the insights from top CV financier in India—Sundaram Finance; (4) our
continued belief that expected 3Q09 solid performance by Taiwan auto
manufacturers should carry over to 2010; (5) the rapid expansion of
Japan’s Honda Motor in Asia that contributed around 60% of its 2Q09
net profit; and (6) the impact of Indonesian government’s move to lower
import duty on cars by 5%.
• Information: We discuss: (1) the impact of Geely’s parent possibly
making a bid for Volvo; (2) the impact of a string of new model
launches by Toyota for its Korean debut; (3) the planned Indian launch
of VW’s Polo in 1H2010; and Nissan’s small car project in India that
aims at 5.5% of market share; (4) the implication of Taiwan’s Finance
Ministry’s unwillingness to extend the commodity tax cut; (5) the shift
in Japanese domestic sales composition from mini to small and mid-size
passenger vehicles aided by government subsidies and tax incentives;
and (6) the subdued 2009 sales volume growth expectations of
Indonesian auto manufacturers.
• Non-consensus calls: (1) We upgraded Brilliance China from Neutral to
OW on the back of the sale of its loss-making Zhonghua sedan to its
parent. (2) We believe Japanese component manufacturers FCC,
Musashi Seimitsu, and Nissin Kogyo are better plays on Indonesian twowheeler
exposure than Indonesia’s Astra. Indonesia accounts for over
40% of operating profit for each of the three. (3) We turn bearish (from
neutral) on the Japanese auto sector on the back of an expected demand
decline with the expiry of scrappage incentive schemes. We downgraded
Toyota Motor and Suzuki Motor to Underweight and Neutral,
respectively.