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November stats: Better days ahead

The Federation of Thai Industries (FTI) reports November auto production at 183K units, down 29% YoY and 1% MoM. Domestic auto sales were 93K units, down 37% YoY but up 5% MoM. Auto exports numbered 96K units, down 4% YoY and 1% MoM.

In 11M13, Thailand's auto production reached 2.29mn units, up 4% YoY. Domestic auto sales were 1.22mn units, down 6% YoY and auto exports were 1.03mn units, up 10% YoY.

Comment:

Main drag: weaker domestic auto market. In 11M13, Thai auto production was up 4% YoY. We note, however, that production has been on a downtrend on a monthly basis, largely due to weak domestic auto sales after the first-car buyer stimulus program ended. The domestic auto market has declined YoY for seven months in a row since May 2013.

Some improvement in December. We expect some improvement in the domestic auto market in December boosted by the Motor Expo, at which 41K cars were booked. However, this fell below the organizer's target of 50K and was only half last year's bookings of 86K units, lacking last year's government's stimulus program plus a hit by deteriorating consumer confidence, political turmoil and the slowed economy.

Forecast 2014 auto production at 2.40mn units. Based on the stats from 11M13, we estimate Thai auto production of 2.46mn units in 2013, relatively flat YoY and slightly above our previous estimate of 2.40mn. We maintain our forecast of 2014 Thai auto production of 2.40mn units, down 2% YoY, before resuming a growth trend, rising 8% YoY to 2.6mn units in 2015. We forecast: 1) domestic auto sales of 1.3mn units in 2013, 1.1mn in 2014 and 1.1mn in 2015, implying CAGR of 5% between 2005 and 2015 and 2) auto exports of 1.1mn in 2013, 1.3mn in 2014 and 1.5mn in 2015, growing at a CAGR of 13percent for 2005-2015.

Better prospects in 2H14. We believe automakers are still managing their excess inventories in the quiet domestic auto market, leading production to continue to head down through 1H14. We expect to see signs of improvement in auto production in 2H14, boosted by the return to normalcy in the domestic auto market and return to growth for auto exports.

Waiting for signs of normalcy. YTD, share prices of SAT, AH and STANLY have underperformed the market by 38%, 23% and flat, respectively. While we see large upside to our TPs, at the same time we see no positive catalysts for the sector. Since earnings are closely tied to auto production, we believe the sector will return to center stage in 2H14 when the auto industry again gets into gear. In this climate of uncertainty, we prefer STANLY, as its higher margin and strong financial health should help dilute earnings volatility.






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