In this note, we assess the growth trend of the used car market and its correlation with new car prices in Indonesia. Indeed, as stated in our previous Anchor Report, average new car price has risen +80% since 2011-2023 (5% CAGR). This has resulted in the used car market also growing significantly (3x during the same period), decoupling from the stagnated new car market during the same period of 2011-2023. In our view, the surge in new car prices has been driven by limited competition in the industry. In our coverage, ASSA IJ and MPMX IJ (both rated Buy) have exposure to the used car market.

New car prices have almost doubled over the past decade

Average new car price in Indonesia rose from IDR193mn in 2011 to IDR347mn in 2023. Indeed, we attribute the sharp increase in new car prices to limited competition, thus indicating that players (predominantly the market leader) have the pricing power. We also conducted an analysis on some best-selling cars in Indonesia, including Toyota Avanza, and observe that prices have risen sharply in the past decade (booked 5% price CAGR in 2014-2024) — reflecting a similar price trend as the industry at a +5% CAGR.

Used cars emerge as beneficiaries of the rally in new car prices

According to LPEM FEB UI, the used car market in Indonesia has grown from only 434k units sold in 2011 to 1.4mn units in 2023 — indicating a more than 3x increase. We observe a high correlation between the sharp increase in new car prices and the used car market — plausibly due to downtrading, given Indonesia’s income growth (i.e., GDP/capita in USD terms, at only a 2.6% CAGR in 2011-2023, according to the World Bank) cannot keep pace with the growth of new car prices (5% CAGR in 2011-2023, based on our analysis).

Stock pick: ASSA IJ should be the top beneficiary through ASLC IJ (Not rated)

We view ASSA as the biggest beneficiary of this phenomenon through its subsidiary, ASLC. Indeed, ASLC’s revenue grew 4x from IDR92bn in 1H21 to IDR381bn in 1H24, with its net profit up from IDR9bn in 1H21 to IDR24bn in 1H24, a result of its superior growth in the auction business as well as sales of used cars, vs. competitors, in our view.

Fig. 1: Indonesia new car prices have risen sharply in the past decade at a 5% CAGR…

Fig. 2: …but Indonesia’s income (GDP/capita) growth registered an only 2.6% CAGR in the same period, below new car price growth

Fig. 3: Used car market as the beneficiary — with a CAGR of 10% during the same period or has grown more than three-fold

Fig. 4: Thus, we view there is downtrading from new cars to the used car market in Indonesia, as income growth cannot keep pace with the growth of new car prices

Fig. 5: High correlation between used car market and new car prices

Fig. 6: CAGR comparison 2011-2023 — consumers are opting for used cars over new cars, as income growth cannot keep pace with the growth of new car prices

Fig. 7: Two of the bestselling models — Toyota Avanza (or Veloz) and Toyota Agya’s highest model selling price. CAGR 5% also since 2014-2024

Fig. 8: ASLC revenue and net profit metrics — strong growth

INVESTMENT RATINGS

A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

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Jupriadi Tan (jupriadi.tan@verdhana.id)

Gerald Hugo (gerald.hugo@verdhana.id)