Despite reports that Japanese automaker Isuzu Motors planned to move manufacturing from Thailand to Indonesia, analysts continue to be optimistic over the country’s automotive sector.
According to Indonesia’s Minister of Industry Agus Gumiwang Kartasasmita on Wednesday, Isuzu has plans to relocate the factory to Indonesia and begin manufacturing as soon as next year. On Thursday, however, Isuzu Motors denied that claim and said that it was not planning to move manufacturing from Thailand to Indonesia.
Thailand is home to Isuzu’s flagship pick-up truck manufacturing plant and is the leading export market for the Japanese carmaker.
In response to Isuzu Motors’ refusal, the director general of Indonesia’s industry ministry stated that Isuzu had confirmed that it would relocate its subsidiary UD Truck to Indonesia.
Krungsri Capital Securities believes that the chance of Isuzu leaving Thailand is low given that the country is one of the largest pick-up truck production hubs in the region. Relocating manufacturing of the UD Truck, however, would have little impact on the total number of vehicles manufactured in Thailand due to its relatively low level of production.
Krungsri Capital predicts a 4-12% downside to automakers’ net profit in 2024 if the Japanese automaker Isuzu relocates to Indonesia.
The Isuzu pick-up truck division contributes for 30% of AAPICO Hitech Pcl. (SET: AH) and 10% of Somboon Advance Technology Pcl. (SET: SAT) revenue. If Isuzu moves one of its factories, AH and SAT could lose as much as half of their revenue in 2024. AH’s 2024 profit would be reduced by 12% but target price would drop by 23% to THB34 (from THB44).
Overall, Krungsri Capital still has a positive outlook for Thailand’s automotive sector. But if auto shares drop below the worst-case scenario forecasts, that would be an opportunity to stock up on dividends.
