According to our macro team, the monthly decline in car sales on a SA basis intensified to 4.1% (from 2.9% a month ago), mainly on the back of lower Lada sales and slower activity in the premium segment. At the same time, the drastic YoY contraction can partly be linked to the negative calendar factor (there were three less working days than in May 2012). Hence, even though we treat the recent data as a weak, one-off reading and see it rebounding soon, the overall picture on car sales underpins our view that the growth in consumer spending is bleak. Given that the authorities have not implemented any substantial stimuli to boost economic growth, we remain cautious on the outlook for the car market this year.
Overall, we expect the slowdown to moderate in the coming months, with some improvement possible in the autumn (especially if the government steps in). Sollers’ sales in Russia were down 8% in May and 6% YTD. Meanwhile, it reported good export sales of UAZ, which resulted in total sales (i.e. domestic and export) being up 1.5% YoY in May. Ford sales, which are carried out through the 50:50 JV with Sollers, fell 17% in May and 18% YTD, primarily due to a weak performance from the Ford Focus (-23% in May and -22% YTD ).
GAZ's LCV sales were also hit by the negative trend and decreased 9% in May, resulting in a 2% decline YTD.
AvtoVAZ’s sales fell 18% in May and 8% YTD.
Among Russian auto stocks, Sollers remains our top pick due to its exposure to growth in the medium term through its JV with Ford, good dividend prospects, good corporate governance and undemanding valuation (2013-14F EV/EBITDA of 2.4-2.9x imply 55-60% discounts to global peers).