Astra International - ASII IJ (Outperform)

Indonesia
Outperform
Unravelling ASIIs valuation enigma
Sticking with the Outperform

Following ASIIs strong share price performance during 2011, and amidst an increasing number of broker downgrades, we take a thorough re-look at ASIIs valuation proposition. We conclude that while the stock indeed looks fully priced on a SOTP basis, we do not believe it to be overpriced, and we also highlight that the stock still offers investors a free option on ASII successfully developing its infrastructure business a source of upside the market may be overlooking. We therefore maintain our Outperform call, and raise our PT from Rp76,000 to Rp80,000. We do not believe ASII to be cheap, but relative to a generally expensive Indonesian consumer sector, we believe the stock still offers ok value.

SOTP analysis suggests ASII is fully but not overpriced

Consensus is increasingly shifting to the view that ASII is fully priced/expensive. While we agree the price is full on a SOTP basis, we do not believe ASII to be overpriced either. Key to this assessment is our belief that ASIIs 4W interests warrant a relatively high multiple (we have utilised 18x FY12E), and we have emphasised that we do not believe the oft-quoted Chinese comps to be particularly relevant to ASII, given vast differences in the level of new car sales penetration between the two markets (Chinas 4W sales were 18.5m in FY11A vs. 0.9m in Indonesia 3.7x higher on a population-adjusted basis).

While we conclude that ASIIis not overvalued on a SOTP basis, equally we believe thatits superficially cheap FY12E PER of 14.6x is deceptively attractive. We highlight that ASIIs earnings are coming off a strong cyclical base across most divisions, and that some of its business units warrant a multiple discount most notably ASIIs maturing 2W interests, as well as its financing subsidiaries (especially FIF, which is now suffering severe NIM compression). We also note that ASII looks much less attractive on a P/BV basis (4.8x FY11E).

However, the market may be overlooking growth options

However, we highlight that this SOTP approach does not apply any value to ASIIs ability to recycle FCF generated from its more mature divisions into new growth areas, which historically ASII has successfully achieved. We highlight that ASII is targeting aggressive growth in its infrastructure business moving forward, which may introduce a new growth engine to ASIIs line-up. This form of upside is not factored into conventional SOTP-based valuation approaches.

With the above said, we caveat the potential over-use of this (arguably bull market) argument particularly now that ASII is already a relatively large company (US$32bn market cap), which will make high-ROE reinvestment more difficult to achieve. ASII has also increased its dividend payout to 45%. We also note that ASII remains a cyclical business, and will not forever remain in favour with investors (nor will Indonesia). However, while ASII remains below our SOTP valuation, we remain inclined to err on the bullish side and remain overweight.

Retaining our Outperform call

While ASIIs valuation proposition is now much less compelling than it was 12 months ago, we think the long term value case still stacks up (just), and we retain a preference for ASII over other large cap consumer names (UNVR, INDF, and GGRM). However, viewing the sector overall, we much prefer our mid-cap picks MAPI and ACES for aggressive growth and a better risk/reward trade-off.

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Analyst(s)
PT Macquarie Capital Securities IndonesiaLyall Taylor+62 21 2598 8489lyall.taylor@macquarie.com

17 February 2012