Cautious On Isuzu’s Ambitious Plans
BMI View : While Isuzu has ambitious plans for its foray into the Taiwanese CV market, we remain more cautious due to the slowing Chinese economy and Taiwan's huge dependence on it. Furthermore, we forecast annual average growth of just 4.1% for the construction industry over the 2013-2017 period, which could put a lid on CV demand. Given that Taiwan is largely a replacement market for CVs, Isuzu would do well by focussing on after sales services to draw back repeat customers.
Hong Kong (HK) based, DCH Holdings, plans to invest TWD$1bn (US$33.3mn) to setup a plant in Taiwan and sell Isuzu trucks locally. It will invest through its local subsidiary, Taipei Triangle Motors Ltd, the local agent of Isuzu trucks since 2012. C. M. Yu, president of Taipei Triangle Motors, said his company plans to invest an additional TWD$250mn (US$8.3mn), in an island-wide sales and service network by 2013. DCH has made Isuzu the number one imported truck brand in HK for 33 years, which has prompted Isuzu to seek DCH's help in tapping the Taiwanese market.
However, we are cautious on Isuzu's ambitious local expansion plans. Isuzu plans to grab market share from major rivals such as Hino and Fuso and garner a sizable 25% share in the domestic commercial vehicle (CV) market over the next five years.
|Taiwan- Domestic Commercial Vehicle Sales|
BMI forecasts the CV segment to enjoy average annual growth of 8.3% over the 2012-2017 period, to hit 91,000 units by 2017. However, it must be noted that such a high growth rate is largely due to base effects, given that 2012 sales are expected to come in at a small base of 58,000 units.
Fundamentally, we remain bearish on the Taiwanese economy. As we have mentioned previously, Taiwan's huge trade dependence on China makes it vulnerable to the Chinese economy. Given our view that the Chinese economy is going through a structural slowdown and that Taiwan has more than 25% of its exports going to China, we expect the Taiwanese economy to experience slowing growth in the coming years as well. Our country risk team forecasts Taiwanese GDP to grow at an average of 3.4% annually over the 2012-2017 period. Such sluggish economic growth will negatively affect demand for vehicles in the coming years.
The November PMI figure of 47.4 is the fifth consecutive month where the figure has come in below 50. Furthermore, construction activity is also forecasted to remain subdued in the next few years. Our Infrastructure team forecasts the construction industry to grow at an annual average of 4.1% over the 2013-2017period. We believe this is likely to keep a lid on demand for CVs.
That being said, we still believe that Isuzu can make in-roads in the CV market if it offers a unique selling proposition. Given that Taiwan is mainly a replacement market for CVs, Isuzu needs to ensure great value and after-sales services in its island-wide network to retain repeat customers. Should initial sales remain slow however, we expect the company to re-calibrate its proposed pace of expansion so as to remain competitive in Taiwan.