Philippines On Course To Be Asia's Top Performer
BMI View : As H113 vehicle sales grow 19.7% y-o-y, the Philippines auto market remains on a tear. Due to the strong economic fundamentals which are in place for sustained growth, we have turned more bullish on our long-term auto sales forecast for the Philippines, which will now see the country becoming Asia's top performing market in 2013 and 2014. One key risk to our outlook is an overheating of the economy due to supply-demand mismatch, which will then see inflationary pressures surfacing and the necessity of interest rate hikes to tackle them.
According to the Chamber of Automotive Manufacturers of the Philippines (CAMPI), auto sales for June came in at 14,888 units, up 4.0% year-on-year (y-o-y). While sales growth rates have slowed from the impressive double digit clip we saw in the first few months of the year, H113 vehicle sales were still up by an impressive 19.7% y-o-y, to 87,226 units.
The sustained strength in the passenger car segment, a trend which we have been highlighting for some time ( see 'Upgrading Car Sales Forecast On Consumer Sentiment', May 20), continues to play out, with H113 car sales up 28.2% y-o-y. This has, once again, prompted us to upgrade our full-year passenger car sales growth forecast to 13.0%, to 55,000 units, from 11.0% previously. We believe the consumer story has room to run further on the back of easing credit in the economy, as well as rising disposable incomes.
|Base Effects Look Favourable To H213 Sales|
|Philippines - Passenger Car Sales, Units (LHS); % Chg y-o-y (RHS)|
The upward revision in passenger car sales will then take our 2013 total vehicle sales growth forecast to 11.6%, to 175,000 units, from 11.0% previously.
Philippines: The Regional Outperformer
Furthermore, we have gone on to upgrade our long-term vehicle sales forecast slightly on the back of the strong fundamentals of the Philippines' current growth boom. We forecast auto sales to grow at an average of 7.5% over the 2013-2017 period, versus 6.7% previously, to hit 230,000 units by 2017.
Adding weight to our view is the recent improvement in the Philippines' future growth outlook. BMI's Country Risk team believes that the remainder of President Aquino's term (an additional three years) holds the potential for greater foreign direct investment which will be attracted by an improving business environment. We see this as a positive catalyst for commercial vehicle (CV) sales.
Secondly, the country's low credit to GDP ratio suggests that there is plenty more room for consumer credit to expand in the coming years, without a bubble necessarily forming in the consumer loan sector. This, we believe, will continue to support the strong showing in passenger car sales, and informs our forecast of 9.1% average growth in the segment, over the 2013-2017 period.
Our upgrade in sales forecasts will translate into the Philippines becoming Asia's fastest growing autos market, in 2013 and 2014. The accompanying chart juxtaposes the country's vehicle sales growth rates in the next two years with some of the other fast growing regional markets.
|Philippines Remains Asia's Best Performer|
|Select Asian Countries - Auto Sales Growth (% chg y-o-y) For 2013 And 2014|
China and Indonesia are two other Asian markets where we remain bullish on the long-term prospects of auto sales. However, with China facing slowing economic growth and Indonesian consumers having to grapple with higher fuel prices following the recent cut in fuel subsidies, it is no surprise that the Philippines is set to take over the mantle of Asia's best performing auto market in 2013 and 2014.
Risk To Outlook
That said, while we are significantly bullish on the potential of the Philippines auto market, one key risk to our outlook is the possibility of the economy overheating. Should inflationary pressures begin to surface in the coming months, due to supply constraints being unable to keep up with runaway demand, the central bank will be forced to hike interest rates in order to cool the economy. The negative impact on both the passenger car segment (due to more expensive consumer credit) as well as the CV segment (as investment projects become more expensive to finance) will then exert a downside risk to our sales forecast.