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Auto Sector

Auto sector sluggish Underweight

Auto Sector

- February 2014 car production drops 24%yoy

The Federation of Thai Industries (FTI) reported February 2014 car

production at 173,506 units, falling 24.3%yoy. Domestic car sales were

71,680 units, contracting 44.8%yoy. 97,171 units of CBU cars were exported

in February, staying unchanged yoy.

- FY2014 car production to drop 6%yoy to 2.3 million

Car production has been sluggish in early-2014 because of lack of

stimulation. Domestic automotive market has been dull, and automotive

export has not grown much. As a result, 2M14 car production dropped by

27.7%yoy to 336,000 units. Car production is expected around 160,000-

180,000 units/month in 1H14 (close to 2H13), and rebound to 180,000-

200,000 units/month in 2H14. Overall, FY2014 total car production is

expected at 2.3 million units (lower than FTI’s target at 2.4 million),

dropping 6%yoy, compared to 2.45 million units in 2013. FY2013 car

production was high because some of the first cars were transferred in 1H13,

while FY2014 car production reflects actual demand (both domestic and

overseas).

- "UNDERWEIGHT". Top pick is AH for lowest price

Car production has been decelerating, affecting earnings forecasts of five

auto part companies under our coverage. Auto sector’s 1Q14 net profit is

projected to slow down and decelerate further in 2Q14 due to low season for

car production. However, 2H14 net profit is projected to rebound along with

car production. Auto sector’s FY2014 net profit is projected at B3.26bn,

falling 9%yoy. Its investment sentiment is unattractive, not likely to

outperform the SET. We recommend underweight for auto sector. Top pick is

AH(FV@B21.18), as its valuation is the most attractive, and its P/E ratio and

PBV are as low as 8.4x and 0.8x, respectively.


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