KamAZ To Target ASEAN From Indonesia
BMI View : KamAZ's decision to assemble its trucks in Indonesia to target the local market, as well as the rest of ASEAN, is similar to Tata Motors' strategy to use the country as its SEA export hub. These developments reinforce our long-held view on the country's potential as an auto production and export hub, predicated on its cheap wages, low-cost of manufacturing and rising investment in the component sector.
Indonesian company PT Tehnika Ina has signed a deal with Russian commercial vehicle (CV) manufacturer KamAZ to assemble and distribute its trucks in Indonesia. According to the President of PT Tehnika, Panca Tazakka, the firm will begin local assembly of KamAZ trucks in Bandung in Q114. The vehicles will be marketed not just locally, but to the rest of the ASEAN region as well.
Despite our outlook for a more challenging 2014 for the overall Indonesian auto sector, and especially the CV segment due to the negative impact of high interest rates ( see 'LCGC Segment A Bright Spot Amid Sector Headwinds', February 14), we believe the firm's targets are realistic given that it aims to sell just 500 trucks in 2014.
Barring the slowdown in 2014, the long-term opportunities in Indonesia's CV sector remain robust. We forecast average annual growth of 9.2% in CV sales over the 2015-2018 period, with sales exceeding 500,000 units in 2018. Our bullish view is supported by our Infrastructure team's upbeat outlook on the country's infrastructure sector, which it forecasts to grow at 7.2% annually over the 2015-2018 period. In our opinion, this portends ample opportunities for KamAZ to increase its domestic sales over the coming years, given that the firm specialises in heavy trucks. Besides the construction industry, we also see the mining industry as a source of demand for the firms' trucks. Our Mining team forecasts 9.8% growth in the country's mining industry over the 2014-2018 period.
|Immense Opportunities In CV Segment|
|Indonesia - Domestic CV Sales, Units (LHS); % chg y-o-y (RHS)|
Kamaz's decision to assemble its trucks in Indonesia and then export them to overseas markets such as Timor Leste, Papua New Guinea and Brunei Darussalam, chimes with Tata Motors' strategy. Tata intends to make Indonesia its South East Asia (SEA) export hub and aims to have 60 full-service dealerships in the country by 2016. Similarly, we believe Kamaz will need more after-sales service centres in the country once its sales expand in order to provide spare parts as well as servicing for customers.
These developments play out our long-held view on Indonesia's potential as an auto production and export hub, predicated on its cheap wages, low-cost of manufacturing and rising investment in the component sector, which is crucial in allowing automakers to increase their localisation rates.