MBKET Picks AH, SAT and STANLY as 2Q21 Auto Production Tends to Grow Strongly

Automobile production and exports in May made a significant recovery from the same period of last year that was damaged by the coronavirus outbreak. However, domestic car sales dropped slightly compared to the previous month due to the 3rd wave of Covid-19 and more stringent loan approval by financial institutions.

Maybank Kim Eng Securities (Thailand) (MBKET) maintained a “Neutral” rating on Thailand’s automotive sector, expecting auto production in 2Q21 to slow down, while production would continue to grow. MBKET chose AH, SAT and STANLY as top picks in the auto sector.

According to the latest data, the auto production in May came out strong at 140,168 vehicles (+34%MoM, +150%YoY). Domestic car market slowed MoM to 55,942 units (-4%MoM, +38%YoY) while exports hit 79,479 units (+50%MoM, +166%YoY). As of the first five months in 2021, total production reached 710,356 vehicles (+33% YoY); 308,211 units sold domestically, (+14% YoY) and exports of 390,467 units (+30% YoY). 

For the 2021 outlook, MBKET forecast the auto output of 1.7 million units, (+19%), but still below the normal level of 2 million vehicles. 

MBKET estimates that auto production in 2Q21 is likely to slow to about 375k-385k vehicles, down 17-20% QoQ, impacted by the third wave of Covid-19, chip shortage and low season. But production should grow 144-153% YoY due to the temporary closure of the factory last year. MBKET expects normalised earnings of AH, SAT, STANLY in 2Q21 to slow from 1Q21, but improve YoY that suffered a loss. MBKET’s top BUY stocks are SAT (TP THB24), STANLY (TP THB212) and AH (TP THB28). Recommend BUY on weakness after a sharp rise in share prices and weak 2Q21 earnings outlook.