Solid Quarter for 4W and 2W

The Indonesian auto sector experienced another positive month in March-23, with 2W sales of 633,155 units (+10% MoM, +40.5% YoY) which helped boost 1Q23 sales to 1.8 million units (+44.5% YoY), exceeding pre-pandemic levels (+8.5% more than in 1Q19) and our forecast (33.2% of SSI’s projections). 4W sales also recorded positive growth in Mar-23 (+16.2% MoM, +2.6% YoY to 101,048 units), boosting its 1Q23 figure to 282,125 units (+7.0% YoY), in line with our forecast (28.2% of SSI’s projections) while exceeding pre-pandemic levels (+10.9% more than in 1Q19). Considering the better-than-expected 2W sales in 1Q23, we revised our projection for FY23F 2W sales to 5.8 million units (prev: 5.5 million units) and maintained 4W sales at 1 million units.

 

ASII: Another Month as Market Leader

ASII once again managed to retain its seat as market leader in both 4W (53.2%, through Toyota and Daihatsu) and 2W (> 70%, through Honda). ASII's 4W sales grew +5.6% YoY to 150,006 units, beating its pre-pandemic levels by +11.8%. The solid performance was mainly driven by the growth in sales from the company’s top brands, Toyota (+5.8% YoY) and Daihatsu (+6.9% YoY); which contributed 57.2% and 36.2% of ASII’s 4W sales, respectively. It should be noted, however, that non-ASII brands reported even better sales growth in 1Q23 (+8.6% YoY), supported by several brands such as Honda and Hyundai; Honda reported sales growth of +33.4% YoY in 1Q23, which helped boost its market share to 16.7% (1Q22: 13.4%), while Hyundai reported sales growth of +80.8% YoY, supported by the launch of Stargazer in August last year. Its market share also grew to 3.7 % in 1Q23 (1Q22: 2.2%).

 

Updates on EV incentives

The government has started providing subsidies for the purchase of 2W EVs of IDR 7 million/unit (since 20 March 2023) and VAT cuts for 4W EVs from 11% to 1% (since 1 April 2023). The government has allocated a budget of IDR 7 trillion for 2W EV-related subsidies in 2023-2024, IDR 1.75 trillion for this year (200 thousand new 2W EVs and 50 thousand converted 2Ws), and IDR 5.25 trillion for next year (600 thousand new 2W EVs and 150 thousand converted 2Ws). The new 2W EV subsidy is only provided to MSMEs who are the recipients of People's Business Credit (KUR), recipients of Micro Business Productive assistance (BPUM), recipients of wage subsidy assistance, as well as recipients of 450VA and 900VA electricity subsidies, while the conversion subsidy is available for everyone. At the moment, the 2W EV subsidy is given only for the purchase of 13 types of 2W EVs from 8 manufacturers that meet the TKDN requirements (Gesits, Selis, Volta, United, Smoot, Viar, Rakata, and Polytron). Meanwhile, the 4W EV VAT cuts will only be provided for the purchase of Hyundai Ioniq 5 and Wuling Air EV (TKDN > 40%).

 

Top Pick: DRMA

We keep DRMA as our top pick with a TP of IDR 920, implying an FY23F PE of 10.3x. This year (FY23F), DRMA will open a new 4W factory that will produce suspension members, while also entering the EV industry with its component localization and charging station projects. Not only that, DRMA has also acquired a 72.75% stake in PT Trimitra Chitrahasta, which may provide an additional boost for DRMA's financial performance. As a reminder, DRMA posted an excellent performance in FY22, registering the largest full-year revenue (IDR 3.9 trillion, +34.1% YoY) and net profit (IDR 394 billion, +89.1% YoY excluding one-off gain from the sale of its assets in Balaraja in 2021) in its history.