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Global Auto Horizons
October 2011
In the past month (and for the third consecutive month), we edged down our
demand assumptions for a number of markets. We cut two ratings from
Outperform to Neutral following recent share price strength and a tougher FX
environment: Suzuki Motor and Daihatsu Motor. We also published a detailed
report comparing the outlook for the Japanese and Korean automakers.
Tougher markets everywhere, but no 2008-style collapse
In the past few months, we have edged down our demand assumptions for most
of the world’s major markets. In the past month, we cut our CY12 US light
vehicle market estimate by 3% to 13.4m (vs. 13.8m before); our FY3/13 Japan
all-vehicle assumption by 1%; our CY12 Korea all-vehicle forecast by 2%; and
our CY11 and CY12 India all-vehicle assumptions by 4% and 5%, respectively.
Albeit with slightly different regional characteristics, the common theme among
these changes was a more cautious view on the macro-economic backdrop.
The situation in India has been accentuated in the current year by supply-side
disruptions due to strikes at market-share leader Maruti Suzuki. For Japan, we
are actually edging up our FY3/12 forecast due to a slightly faster-than-expected
end to supply-chain disruption due to the Japanese earthquake in March. Overall
this means that we expect the global light vehicle market to grow by +3.9% in
2011 (vs. +4.2% before) and by +5.7% in 2012 (vs. 6.3% before).
For the Japanese OEMs, we cut our earnings estimates across the board by
between 9% and 26% for FY3/13 (for Mazda, we forecast a loss, from a profit
previously). These estimate cuts partly reflect the volume reductions (in the 1-3%
range globally on average for the Japanese OEMs) and also take into account
that the recent global economic and financial instability has added an additional
twist to the knife of yen appreciation. Our new forecasts are based on forward
FX assumptions of ¥77/$ and ¥105/€.
This month’s highlighted stocks
Stocks we like: BMW remains the European OEM with the strongest product
pipeline/cost savings momentum until 2013 and the tyre maker Michelin should
experience lower than expected raw material headwinds moving forward on the
back of falling natural rubber and butadiene prices. We expect a 4Q11 Japanese
production surge to fuel not only retail market share recovery but also restocking
due to post-quake normalization of the supply chain, benefiting the following
stocks in particular: Toyota, Denso, Aisin Seiki and Fuji Heavy. In Korea, we
highlight Kia, for which the new K2 and K5 models should drive top-line and
earnings growth during the coming quarter, while Mahindra & Mahindra in India
has a robust product pipeline and exposure to rural Indian markets where
demand remains resilient. We continue to like Great Wall, due to its local-brand
leadership in the booming Chinese SUV market.
Stocks we don’t like: PSA Group and Fiat SpA are expected to face weaker
volumes/tougher pricing in their respective core markets France, Italy and Brazil
moving forward. We remain cautious on Mazda, due to its heavy exposure to
macro risks and yen strength and deteriorating cash position. We are also
cautious on Bajaj Auto, whose recent results announcement reaffirmed our
concerns on market share loss, mix deterioration and slowing domestic demand.
Finally, we still recommend staying away from BYD.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Global Auto Horizons
October 2011
In the past month (and for the third consecutive month), we edged down our
demand assumptions for a number of markets. We cut two ratings from
Outperform to Neutral following recent share price strength and a tougher FX
environment: Suzuki Motor and Daihatsu Motor. We also published a detailed
report comparing the outlook for the Japanese and Korean automakers.
Tougher markets everywhere, but no 2008-style collapse
In the past few months, we have edged down our demand assumptions for most
of the world’s major markets. In the past month, we cut our CY12 US light
vehicle market estimate by 3% to 13.4m (vs. 13.8m before); our FY3/13 Japan
all-vehicle assumption by 1%; our CY12 Korea all-vehicle forecast by 2%; and
our CY11 and CY12 India all-vehicle assumptions by 4% and 5%, respectively.
Albeit with slightly different regional characteristics, the common theme among
these changes was a more cautious view on the macro-economic backdrop.
The situation in India has been accentuated in the current year by supply-side
disruptions due to strikes at market-share leader Maruti Suzuki. For Japan, we
are actually edging up our FY3/12 forecast due to a slightly faster-than-expected
end to supply-chain disruption due to the Japanese earthquake in March. Overall
this means that we expect the global light vehicle market to grow by +3.9% in
2011 (vs. +4.2% before) and by +5.7% in 2012 (vs. 6.3% before).
For the Japanese OEMs, we cut our earnings estimates across the board by
between 9% and 26% for FY3/13 (for Mazda, we forecast a loss, from a profit
previously). These estimate cuts partly reflect the volume reductions (in the 1-3%
range globally on average for the Japanese OEMs) and also take into account
that the recent global economic and financial instability has added an additional
twist to the knife of yen appreciation. Our new forecasts are based on forward
FX assumptions of ¥77/$ and ¥105/€.
This month’s highlighted stocks
Stocks we like: BMW remains the European OEM with the strongest product
pipeline/cost savings momentum until 2013 and the tyre maker Michelin should
experience lower than expected raw material headwinds moving forward on the
back of falling natural rubber and butadiene prices. We expect a 4Q11 Japanese
production surge to fuel not only retail market share recovery but also restocking
due to post-quake normalization of the supply chain, benefiting the following
stocks in particular: Toyota, Denso, Aisin Seiki and Fuji Heavy. In Korea, we
highlight Kia, for which the new K2 and K5 models should drive top-line and
earnings growth during the coming quarter, while Mahindra & Mahindra in India
has a robust product pipeline and exposure to rural Indian markets where
demand remains resilient. We continue to like Great Wall, due to its local-brand
leadership in the booming Chinese SUV market.
Stocks we don’t like: PSA Group and Fiat SpA are expected to face weaker
volumes/tougher pricing in their respective core markets France, Italy and Brazil
moving forward. We remain cautious on Mazda, due to its heavy exposure to
macro risks and yen strength and deteriorating cash position. We are also
cautious on Bajaj Auto, whose recent results announcement reaffirmed our
concerns on market share loss, mix deterioration and slowing domestic demand.
Finally, we still recommend staying away from BYD.
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