Thursday, March 24, 2011

PT Astra International Tbk (ASII)

by CIMB securities

• Maintain Outperform with lower target price of Rp62k (from Rp65k), still SOP based. We cut our FY11-13 earnings estimates by 1-3% to factor in potential supply disruptions for its heavy-equipment and auto businesses subsequent to the Japanese earthquake. That aside, auto demand remains firmly anchored despite headwinds from policy changes for subsidised fuel as well as higher regional vehicle taxes. ASII’s share price normally performs well when the rupiah appreciates. This could provide a near-term catalyst, we believe. Our new target price implies 15.6x and 3.7x forward P/E and P/BV valuations, +2 standard deviations and +1 standard deviation to their respective 3 yrs moving averages.

• Trimming earnings by 1-3% on potential supply disruptions. UT sources 10% of its heavy equipment from Japan, particularly its larger units, which carry 7% downside risks to revenue in the worst case, in our estimation. On the auto side, some 3% of parts are imported from Japan. We have trimmed our FY11 car-growth assumption by 2% pts to 9% yoy, while maintaining our motorcycle growth forecast at 18% yoy, given motorcycles’ less dependence on Japanese parts.

• Growth drivers firmly anchored, arguably accelerating given expanding disposable income as Indonesia’s per capita GDP had exceeded US$3k last year. At 12-15% annual nominal GDP growth expected for the next three years, auto demand may grow 15-20% p.a., also supported by plentiful liquidity and structurally declining lending rates.

Factoring in supply risks from Japan. We cut our earnings by 1-3% for FY11-13, more for the heavy equipment than auto business. Up to 10% of UT’s large specialised mining equipment is still supplied directly from Japan, representing 20% of its heavy equipment revenue. Assuming a recovery is protracted, our UT analyst estimates that UT’s revenue could fall by 7%, in the worst case. While inventories (about two months worth) could buffer short-term shocks and potentially higher coal prices, our analyst has factored in the worst case, cutting earnings by 3-8%. In the auto business, less than 3% of parts are imported from Japan, according to the company. Just-in-time inventory does not leave much of a buffer (about two weeks). On the brighter side, most locally assembled units have high domestic content, particularly motorcycles. Additionally, most units sold are entry-level cars, which do not rely on higher-technology imports from Japan. Nevertheless, we have trimmed our FY11 car growth assumption by 2% pts to 9%, while maintaining our motorcycle growth forecast at 18%, on a lower reliance on Japanese parts. Supply disruptions are likely to hit CBU cars, such as luxury brands Alphard and Lexus, which account for about 5% of the market.

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