Volvo Group To Exploit SEA's Vast Infrastructure Needs
BMI View : Volvo Group Thailand's truck production plant is well positioned to handle domestic demand for road freight as well as to benefit from the Thai government's upcoming infrastructure development plans. We also see great potential for Volvo's heavy truck exports to the rest of the SEA region given that there are immense infrastructure needs in many of the region's fast growing emerging markets. We forecast combined heavy truck sales in Indonesia, Thailand and Philippines to grow at an average of 6.6% over the 2013-2017 period.
Volvo Group Thailand is putting aside THB5bn (US$159mn) for its capital expenditure plans from 2013-2015. THB2bn (63.6mn) will be spent on expanding production at the firm's truck assembly plant in Bang Na-Trat Road, to 4,500 units. Volvo Group also intends to make this plant its Asian production hub and have it produce UD-branded heavy trucks, which will be exported to markets within South East Asia (SEA). The remaining THB3bn (US$95.4mn) will be used to extend Volvo's service network from the south to north and the west to east, by increasing the current 10 dealerships to 17, by 2015.
Advantage Of Road Freight In Thailand
Thailand shares its border with four other countries and the practicality of using land transport to export goods to these countries ensures that demand for trucks remains strong. Although boasting top-class port infrastructure, we believe the short distance between some of the pick-up and delivery points means that it is faster and cheaper to use road freight instead of sea freight. Furthermore, sea transport involves more paperwork and requires a shipping agent.
Government Infrastructure Plans Will Benefit Volvo's Domestic Sales
Volvo Group Thailand's domestic truck H113 sales were up 20% year-on-year (y-o-y), to 400 units as demand for its vehicles remains strong and the firm intends to sell about 1,000 units domestically by 2015. While its total sales of 600 units in 2012 garnered just a 3% market share, they made up 80% of the premium truck market. The firm's pricing power, together with strong domestic demand for trucks, will continue to bolster its market leadership.
Furthermore, the Thai government has pledged infrastructure projects of over THB2trn (US$63.9bn) which will be spread out over the next seven years. This bodes well for local commercial vehicle (CV) manufacturers such as Volvo, which will see an increase in demand for their trucks for the various construction projects.
The strength in H113 heavy truck sales has prompted us to upgrade our 2013 sales growth forecast for the Thai heavy truck segment (which includes medium trucks) to 10.0% from -3.0% previously, to 66,000 units.
Thai Base Well Placed To Export To Rest Of SEA
Volvo intends to earmark 3,500 trucks from its Thai production for export sales. While our Country Risk team observes a general slowdown in Thailand's export sector, continued resilience in auto exports remains a bright spot in the economy ( see 'Autos Boom Positive For Growth Amid Tepid Export Data', April 30).
The firm intends to export its heavy duty trucks to SEA countries, which include its neighbours, Myanmar, Laos and Cambodia. With Myanmar slowly liberalising its economy, we believe there will be a big upcoming need for basic infrastructure development in the country. This will provide opportunities for CV manufacturers and we see Volvo as well-placed to use Thailand as a base for exporting its heavy trucks to Myanmar, due to its conducive business environment versus its regional peers.
Vast Infrastructure Opportunities In The Region
BMI is bullish on heavy truck sales growth in the ASEAN region. The onset of the ASEAN Economic Community in 2015 will see inter-country tariffs between member countries removed, which would then see automakers focusing their production in several countries and exporting to markets with end-demand, in order to reap economies of scale. Besides Myanmar, the infrastructure potential in the rest of SEA is immense, due to the still developing status of many of the region's emerging markets. Indeed, our infrastructure team forecasts average annual growth of 7.2% over the 2013-2017 period, in the combined infrastructure sectors of Indonesia, Malaysia, Singapore, Vietnam and the Philippines.
|ASEAN Infrastructure Opportunities Will Drive Heavy Truck Demand|
|Total Heavy Truck Sales In Selected ASEAN Countries, Units (LHS); Chg y-o-y, % (RHS)|
Adding to the upbeat prospects of the region, we forecast combined heavy truck sales in Indonesia, Thailand and Philippines (countries we monitor segment sales in), to grow at an average of 6.6% over the 2013-2017 period, to hit 300,000 units by 2017.