Investment May Stall In The Short Term
BMI View : As we turn more downbeat on the Thai auto sector in the short term due to weakening consumer demand, we see the risk of some suppliers and carmakers postponing their investments in the sector. However, in the medium- to long term, the sector will continue to attract investment due to the country's status as the region's premier automotive hub.
With Thailand entering into a technical recession in the Q213 and emerging markets witnessing a sharp sell-off in recent weeks, industry players such as original equipment manufacturers are understandably putting out a more cautious tone on future earnings from emerging markets.
Furthermore, we have recently turned more downbeat on the Thai auto market as we see consumer demand weakening in the coming months and vehicle exports also struggling to maintain their strong H113 growth rates ( see 'Production Faces Challenges In Coming Months', August 27). Against such a backdrop, we see the possibility of some automakers and suppliers having a re-think about investing in the Thai auto market.
TRU Delays Expansion Plans Due To Weaker Outlook
We highlighted back in March 2013 that Thai Rung Union Car Plc (TRU) was being overly optimistic in forecasting vehicle production growth of 15% in 2013 ( see 'TRU Increases Capacity To Meet Rising Demand', March 18) and we also warned that its share price had risen to unsustainable levels. True enough, its share price soon corrected and the supplier also recently announced that it is delaying the expansion in capacity due to a weak domestic market outlook.
According to the firm's managing director, Sompong Phaoenchoke, 'the anticipated decline in the domestic auto sales makes it unnecessary to expand capacity at this time.'
|Falling In Line With Our Cautious Outlook|
|Thailand - TRU Share Price (THB)|
That said, we do not believe that TRU's sentiment is reflective of the long-term potential for additional investment in the sector. We remain bullish on the Thai auto market and believe that it will continue to attract more investment in the medium- to long term as the country's excellent port infrastructure and conducive business environment cement its position as the region's premier automotive hub.