REPUBLIKA.CO.ID, JAKARTA -- Bank Indonesia's (BI) interest-rate cuts, which should drive consumer-lending rates lower, are unlikely to lead to a strong rebound in auto sales and four-wheeled (4W) vehicles sales will probably continue to slow in 2019, Fitch Ratings says, Thursday (22/8).
BI lowered the seven-day repo rate for a second month on 22 August 2019, cutting the rate by 25bp to 5.50% following an earlier 25bp cut in July, to stimulate growth in the economy amid stable inflation rates. Fitch says they do not expect Indonesia's auto sales to recover materially in 2019 despite the favourable policy moves and the better interest-rate environment.
Rates at the consumer level are typically adjusted gradually; therefore, the effect of BI's cuts in the seven-day repo rate would only be felt gradually. The rate cuts would drive lending rates lower, which should prompt demand for automotive sales in the longer term as around 70%-80% of new automotive purchases in Indonesia are made through loans.
PT Astra Otoparts Tbk's (AUTO, AA-(idn)/Stable) parent, PT Astra International Tbk, continued to lead automotive sales in 1H19 with over 52% market share in car sales and 75% market share in motorcycle sales. Toyota remained the strongest brand among the cars distributed by Astra, with 32% market share followed by Daihatsu at 18%. Mitsubishi, Honda and Suzuki, which are not sold by Astra, had market share of 17%, 12% and 10%, respectively. For motorcycles, Astra only sells a single brand, Honda.
Fitch expects AUTO's credit profile to remain solid after the auto-component maker and distributor reported low-single-digit sales growth in 1H19 amid continued softness in 4W vehicles. The repayment of a IDR350 billion medium-term note (MTN) earlier this month was funded through internal cash flow generation, which would improve AUTO's financial flexibility.
AUTO's revenue rose by 2.3% yoy in 1H19 despite the slower growth in the auto market, supported by its business-to-consumer (B2C) trading segment. AUTO's B2C trading-segment revenue increased by 6% yoy, while its business-to-business original-equipment-manufacturer segment contracted by 0.8% yoy, reflective of the industry's slowdown. We incorporated these factors into our previous projections and we believe AUTO is on track to meet our IDR15.8 trillion revenue target in 2019, or 2.6% yoy growth.
AUTO's operating profitability was stable despite the slowdown, which was also in line with our expectations. The company generated EBITDA and EBIT margins of 6.6% and 3.5%, respectively, in 1H19, in line with Fitch's expectations of 6.5% and 3.3% for the full year.
Capex of just IDR269 billion and investments of IDR415 billion had minimal impact on leverage as net debt to EBITDA was 0.6x. The company also continued to maintain a solid cash balance of IDR714 billion at end-June 2019, which was subsequently used to repay the maturing MTN in August 2019.
Automobile sales contracted by 13% yoy in 1H19 and by 10% qoq in 2Q19. We do not believe year-end sales will reach the 1.1 million-unit sales target set by the auto industry association at the beginning of the year due to the slow growth observed in 1H19.
On the other hand, motorcycle sales performed better with 7% yoy growth, although sales in 2Q19 contracted by 8% after a strong performance in 1Q19. The industry association expects total motorcycle sales of 6.3 million units by end-2019, similar to sales achieved last year.