Wednesday, October 3, 2012

Not so succesful

Bahana : IMAS

2 October 2012  Bahana Beacon – Corporate Flash
Indomobil Sukses Internasional

Not so succesful

Rising competition and lack of differentiation on new low end models
§        Rising risk given similarity in models: Having observed Agya and Ayla (exhibit 5) at the Indonesia International Motor Show (IIMS) last week, we see increasing downside risk in the sales of Nissan’s new lower segment model “March”, mainly due to lack of differentiation versus rival models.  A Nissan “March” competing salesman that we spoke to, stated that he could hardly find any significant difference between his product and “March”.    

§        Pricing is the swing factor for low end car buyers: In a market that caters toward the lower income segment and first time car buyers, pricing becomes an important determinant for price conscious car users. “March” is currently priced starting at IDR143m (USD14.9k) just IDR4m (USD415) cheaper than Mitsubishi’s “Mirage” with future competition coming from Agya and Ayla, which will be priced below IDR100m (below USD10.5k).

§        Intensifying competition on the cards: Price differentials between low-end hatchback models compared to Low Cost Green Cars (LCGCs) are significant. With LCGC’s models priced some 40% lower on similar installment and down payment terms, we reiterate our below consensus numbers on intensifying competition within the 4W lower segment models.

Outlook: Strong brand equity & higher resale value to perform better
In the short to medium term, we believe Astra International (ASII-BUY-IDR7,300-TP:IDR8,700) with its strong brand equity and resale value will perform better than IMAS in our view.  We point out that Nissan Indonesia only operates around 70-80 dealers, compared to Toyota Astra Motor’s network of more than 200 dealers.

Recommendation & valuation: Cut to HOLD on de-rating; Prefer ASII
Given current intense competitive landscape, we expect a de-rating of IMAS’ valuation towards the market’s 2013 PE multiple of 15x, which translates to our new target price of IDR6,400. At this stage, we believe IMAS must exhibit its marketing capability to the market without severely eroding its margins, before we can turn more positive on the counter.  With only 14% upside potential to our TP, we lower our rating on IMAS from Buy to HOLD.

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