Jardine Cycle & Carriage: Systemic motorcar sales continue to decline despite interest rate cuts

Motorcar sales fall in May. Preliminary data indicates that new motorcar unit sales in Indonesia declined 34% YoY in May (or -6.1% MoM), to 32,500 units. This was despite the central bank cutting key interest rates by a further 25 basis points in May to 7.25%. The data seems to reaffirm our earlier view that consumers are still cautious and are not spending on automotives. Maintain SELL on JC&C, with price target of S$11.50.

4M09 market share of 57% likely to remain consistent. We are expecting domestic motorcar unit sales in FY09 to decline 25% after the strong sales achieved in FY08. This is expected to be dragged down by the global economic slowdown. We expect Astra to achieve a market share of 56% for motorcar unit sales in FY09, given its consistent performance in the first four months of the year.

Further interest rate cuts may not spur demand. Indonesia cut its benchmark interest rates by yet another 25 basis points in Jun 09 (the seventh consecutive month) to 7.0% and maintains that there is still room for further reductions as the nation’s inflation slows. We maintain our view that demand for automotives are not likely to surge even if interest rates continue to decline, due to protracted global economic downturn.

Maintain SELL. We are maintaining our estimates of a 22% and 20% decline in Astra’s FY09 motorcar and motorcycle unit sales respectively. Based on SOTP valuation, we have a target price of S$11.50.

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