Automobile Sector – Recovery to go into full gear – Sector note

• We believe that the pent-up demand and the preferential policy from the Government will support for passenger cars to bounce back since 4Q21-22.
• Our stock picks are HAX and VEA thanks to taking advantage of the reduction of 50% registration tax and the trend of using luxury cars.

Vietnam automobile market likely to bottom out since early 2022

According to VAMA, automobile sales in 3Q21 posted 34,467 units (-50.7% yoy) as PC (passenger car) distributors and dealers had to close stores to implement social distancing. Especially, automobile sales in Aug-21 only reached 8,884 units – the lowest since 2015. Furthermore, on 15-Oct-21, the Ministry of Finance has consulted relevant ministries and agencies on the reduction of 50% of registration tax on domestically manufactured and assembled automobiles from 15-Nov-21 to the end of 30-May-22. We believe that the pent-up demand and the preferential policy from the Government will support for passenger cars to bounce back since 4Q21-22.

We see 5 trends to shape the automobile market outlook in 2022-23

Five trends will define the Vietnam automobile industry outlook, including 1) Korean car maintaining their dominant position in the Vietnam PC market, 2) the age of Crossover and SUV, 3) preferential policy from the Government is the key driver for the recovery of automobile industry in 2022; 4) Go green – Electric Vehicle (EV) not being far – fetched anymore, and 5) “Make in Vietnam”: chances for VinFast and supporting companies.

Why automobile stocks and why now?

Covid-19 casted shadow on listed automobile companies’ 3Q21 performance. Most of listed automobile companies recorded the net loss in 3Q21. We expect automobile companies such as SVC, HAX, CTF, and VEA to recover robustly in 4Q21-22F thanks to the low base in 3Q21 and taking advantage of 5 five trends above. We believe that this is a “golden time” to invest in automobile stocks.

Stock picks: We like HAX and VEA

We expect HAX to take benefits from the preferential policy from the Government as most of HAX’s car model is assembled in Vietnam. While we expect Toyota Cross and Toyota Raize are the key drivers of VEA’s earnings growth in FY22F thanks to a rising consumer preference for CUV and Hybrid Electric Vehicle. Furthermore, HAX and VEA are trading at TTM P/E of 14.3x and 10.1x, respectively, which are attractive with lower than 12.5% and 39.5% of the regional peer average. Investment risk is the worsening of the Covid-19 outbreak may hit automobile listed companies’ s performance directly.

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