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In recent years, automobile sales have been coming down, globally. Countries are increasingly neglecting the use of traditional internal combustion engines (ICEs) in a bid to address mainstream issues like climate change.
It is likely that the future of the automotive aftermarket will be influenced by underlying disruptions in the auto market, which include changing customer expectations, uptake of new technologies, and a dynamic competitive environment.
Therefore, these potential disruptions in the auto market are likely to affect business models for aftermarket companies, consequently their profitability and shareholder value creation.
New entrants in the industry would see it as an opportunity to disrupt the markets, and incumbent companies might face second-order effects of new technologies, new entrants as well as new products.
Online-based digital capabilities in the traditional parts-distributing and workshop business models remain a major catalyst to improve customers’ touchpoints as well as value.
Industry Views on EVs
In 2019, the Labour Party had an ambitious target of clocking 50 per cent of new car sales as electric vehicles by 2030. However, it was not materialised as the coalition government took centre stage after the polls.
Meanwhile, the Australian Automotive Aftermarket Association (AAAA) believes that Australians would take some time in buying electric vehicles. It contends that young people with the lowest purchasing power are the most interested segment in purchasing an EV.
AAAA believes that the Government may require to incentivise the EV purchases in order to witness a sharp uptake by customers. It was said that the domestic EV market requires a large number of fast charging stations to accommodate any significant composition of EVs out of the car market.
Besides, the industry body noted that the technicians would require a higher level of training in electrical engineering to meet the skills and expertise needed to service various battery packs.
Structural Issues
AAAA reckons that multinational car companies have anti-competitive and misleading behaviour. This includes choice of repairer, mandatory data sharing, servicing under warranty, capped price service programs, genuine parts as well as vehicle modifications and standard regulations.
In October 2019, there was a landmark development in the domestic vehicle service and repair industry, as the Commonwealth Government announced that mandatory data sharing laws would be introduced.
It was noted that mandatory data sharing would ensure that independent workshops have access to all motor vehicle service and repair information, thus enabling competition among service providers and allowing customers to choose the repairer of their choice.
Australian Automobile Aftermarket
According to AAAA, around 300 automotive manufacturing companies operate in Australia, while car manufacturers had ceased production in the country. It was noted that substantial businesses are engaged in parts and accessories of the 4WD markets with others majorly developing products for light commercial vehicles, performance vehicles and passenger vehicles.
As on 31 January 2019, the average age of total motor vehicles in Australia was 10.2 years with the youngest fleet at an average age of 9.4 years in ACT, according to Motor Vehicle Census by the Australian Bureau of Statistics.
It may also mean that more Australians are likely to repair their vehicles than buying, as consumer spending continues to be suppressed by household debt levels, tepid wage growth and sluggish labour market fundamentals.
High Growth Automobile Component Companies on ASX
Carbon Revolution Limited (ASX:CBR)
Listed in November 2019, the business is new to ASX bourses. It is in the process of industrialising the Carbon Fibre wheels to the global automotive industry, which are innovated and commercialised by the company.
Recently, the company released its quarterly business update for the period ended 31 December 2019 (Q2 FY 2020). It was mentioned that OEM customers have grown significantly, and quarterly wheel sales volume grew to 3,463.
Revenues in the second quarter increased to $10.7 million, indicating a 285 per cent rise from the pcp, which was driven by increased production capacity and throughput.
It continues to ramp-up production volumes in an effort to target a monthly annualised production capacity of approximately 32k wheels per annum by June 2020, compared with 18k wheels in November 2019.
Besides, the company has an ambitious target of becoming EBITDA positive in the fourth quarter of FY2020.
On 12 February 2020 (AEDT 02:10 PM), CBR was trading at $4.340, down by 0.686 per cent from the previous close.
Advanced Braking Technology Ltd (ASX:ABV)
The company manufactures and distributes award winning patented braking systems. It develops brakes for sectors with a strong requirement for safety and environmental responsibility.
Recently, the company released an update, indicating that operating sales were $2.04 million in Q2 FY20, depicting a 23 per cent increase over Q2 FY19. During the six-month period to December 2019, operating sales revenue was $4.31 million, up 32 per cent over 1H FY19.
It was noted that Q2 FY20 product sales margin was 49 per cent, showing an improvement over the previous quarter and the previous financial year. Also, the company achieved an unaudited EBITDA positive state for the 1H FY20 period.
During the period, the company aligned with numerous EV providers to the global mining industry. Its brakes are installed in multiple electric vehicle platforms across the globe.
On 12 February 2020 (AEDT 02:13 pm), ABV was trading at $0.035, up by 9.375 per cent relative to the previous close.
Small-Cap Automobile Component Company on ASX
Schaffer Corporation Limited (ASX:SFC)
Schaffer is a diversified industrial business with operating segments engaged in automotive leather, building materials and investments. The business has a history of paying dividends in each year since its listing in 1963.
Last month, the company announced that the half-year statutory profit after tax is expected to be higher than the first half of the prior financial year, noted at $12.7 million in H1 FY2019.
It was reported that the earnings were upgraded as a result of unrealised non-cash net gains from the increased mark-to-market valuation of the group’s non-property investment portfolio at 31 December 2019.
Meanwhile, it was mentioned that first-half sales volumes and profit for the automotive leather division would be lower than the previous corresponding period, and actions were taken by the management to reduce the impact on profitability.
On 12 February 2020 (AEDT 02:46 PM), SFC was trading at $16.250, up 1.562% from its previous close, with a market cap of $218.77 million.
Mid-cap Company, Bapcor Limited (ASX:BAP) Delivers Record Revenue
Automotive parts retailer, Bapcor has disclosed half-year results for the period ended 31 December 2019. It was noted that every segment of the business grew revenue and profits for the group.
BAP clocked a revenue of $702.5 million, with statutory EBITDA of $106.1 million, statutory NPAT of $45.2 million and statutory EPS of 15.91 cents.
The company has disclosed a fully franked interim dividend of 8 cents per share, payable on 13 March 2020 to the shareholders in records on 18 February 2020.
At around 3 PM AEDT on 12 February 2020, BAP was trading at $7.05, up by 5.22 per cent from the previous close.
