Astra International TP Rp82,000

Light headwind ahead
Softer auto growth to persist with unfavourable new policy. While the upcoming gasoline price hike would not exert a material impact on Astra International’s (ASII) automotive unit, it is poised to face light turbulence from the new ruling of a higher down payment requirement. The new ruling will eliminate the common practice of the ultra-low down payment requirement of only Rp500k (USD55). Specifically, ASII’s MPV segment of 4W and motorcycle sales will be adversely affected. Thus, we expect ASII’s 2012 automotive unit growth to decelerate to 12.8% YoY in 4W and 8% YoY in 2W. Nonetheless, we believe that ASII’s volume will normalise in the
long term due to rising purchasing power, favourable domestic economic conditions, and the lack of public transportation.

Partial growth to stem from coal-related division. Rising global demand for Indonesian coal has benefited ASII’s heavy equipment and mining division unit of United Tractors (UNTR.IJ, HOLD). Therefore, we believe that UNTR will continue to be an integral growth driver for ASII in the next five years. In addition to the higher demand for heavy equipment and mining contracting services in 2012, UNTR aims to acquire additional coal assets, raising coal reserves to 500m tonnes by 2015 from around 300m tonnes currently.

Decelerated 2012 earnings growth. Due to slower automotive volume growth, 2012 earnings will likely grow modestly at 12.7% YoY to Rp20t. We believe that the adverse impact of the new down payment requirement regulation will unfold in 2Q12, which will lead to the beginning of slower earnings growth. Note that in 1Q12, we expect automotive earnings to exhibit solid growth based on double-digit volume growth realisation in 2M12, while UNTR may experience modest growth on seasonality factor.

Lofty valuation & limited upside; HOLD with Rp82,000 TP. Although we continue to like ASII’s business model, with high exposure to domestic market and good corporate governance, we believe that its valuation is demanding: it is trading at 2012 PER of 14.4x, a 10% premium to the market. Thus, while we raise our SOTP-based (Sum-of-the-parts) TP to Rp82,000, we maintain our HOLD rating on ASII. (page1 of 13)

source: KIMENG dated 29 March 2012