BMI View : Vietnam's ongoing banking sector reforms and restructuring of its SOEs could be responsible for the sharp underperformance of sales in the CV segment vis-à-vis the passenger car segment. However, we remain bullish on CV sales in the medium to long term due to the recent surge in FDI inflows, which signals business confidence in the country's long-term potential.
According to the Vietnam Automobile Manufacturers Association (VAMA), September vehicle sales of its members grew 20.6% year-on-year (y-o-y), to 8,465 units. Although, we have maintained for some time that sales in the passenger car segment will outperform the commercial vehicle (CV) segment, the divergence between the two segments has become even starker. While 9M13 passenger car sales grew 40.0% y-o-y, to 39,761 units, CV sales remains roughly unchanged at 26,125 units (this comparison excludes sales from Mercedes-Benz).
|Gains Unequally Distributed Across Segments|
|Vietnam - Auto Sales, Units (LHS); % Chg y-o-y (RHS)|
We are happy to maintain our 2013 CV sales growth forecast at 4.0%, to 37,000 units. However, we acknowledge the fact that growth in passenger car sales continues to exceed our bullish forecast and once again, we intend to upgrade our forecast as we expect car sales to register a strong finish for the full year. We are upgrading our car sales growth forecast to 22.2%, to 53,000 units, from 12.5% previously. This will then bring our 2013 vehicle sales growth forecast to 14.0%, to 90,000 units.
CV Sales To Pick Up In Medium To Long Term
In line with our view, the series of interest rate cuts enacted by the central bank over the past year continues to ease credit in the economy and lower borrowing costs for both consumers and businesses. As lending rates have come down in tandem with the cuts in the State Bank of Vietnam's policy rates, borrowing costs for vehicle buyers have been lowered. Additionally, the cut in car registration fees by the Vietnamese government has acted as a tailwind for passenger car sales by further boosting consumer demand.
However, the contrasting fortunes of the segments demonstrate to us that consumers have taken greater advantage of the lower borrowing rates compared with businesses. We believe that the ongoing banking sector reforms, as well as the restructuring of state owned enterprises (SOEs) ( see 'More Restructuring To Come For SOEs', September 26), could have dented business confidence resulting in the corporate sector retrenching in the short term. This, would then, have had the effect of dampening demand for CVs.
That said, as our Country Risk team has highlighted, the recent surge in foreign direct investment (FDI) inflows signals to us that firms remain optimistic on the long-term economic potential of Vietnam ( see 'Robust FDI Inflows Underpinned By Solid Long-Term Growth Story', September 17). Furthermore, given that we expect the banking sector to stabilise in the near term as the enacted reforms play out, we remain bullish on CV sales in the medium to long term. We forecast CV sales to grow 6.2% per annum over the 2013-2017 period, to hit 48,000 units by 2017.