Wednesday, July 6, 2011

Astra International (Outperform) - June auto volumes again strong; Toyota market share bounces back

Macquarie Securities


· Indonesia's local newspaper the Investor Daily has reported (4/7) that Indonesia's new car sales (wholesale) reached 70.4k units in June. This was flat YoY (pcp 70.4k) but up 15.2% MoM from 61.1k units in May, and represented an acceleration in the rate of recovery from the Japanese earthquake impact.

· Importantly, sales of Toyota-branded vehicles were 26.2k units - largely flat YoY (pcp 26.0k) but a sharp MoM improvement from just 19.6k in May. This implies a June market share for Toyota of 37.2% (May 32.0%) - ie, nothing less than a full recovery following April and May's sharp contraction (Toyota's FY10A market share was 36.8%). Daihatsu's volumes were not disclosed, but Daihatsu's production had already fully recovered by the end of May, with its May market share of 17.1% surprising on the upside (compared to 15.5% in FY10A).


· We believe this to be another stronger-than-expected monthly data print for ASII and has resulted in 2Q11A Indonesian car sales of 190k comfortably beating our initial 167k forecast (while Toyota volumes of 67k beat our 63k forecast). We believe the print is likely to alleviate any lingering uncertainty about the impact of the Japanese earthquake and also augurs well for the direction of earnings revisions, in our view (which we feel were likely incorporating a more material impact than has transpired).

· The source of the data was not disclosed, but Toyota Astra Motor's Marketing Director, Joko Trisanyoto, was quoted at length in the article, and hence we believe is the likely source. We note that in past local Indonesian papers have frequently reported data ahead of its official release, and the quoted data has been usually reliable and accurate. (With that said, we note that the quoted vehicle sales number for 1H11A of 415.2k units implies only 68.0k unit sales in June relative to the previous official 5M11A data point of 347.2k; however, this is mostly likely due to a minor restatement of prior months' data prints, which happens relatively often).

· With respect to outlook, Joko said he was expecting sales to continue at around the present run-rate during 3Q11E, due to the seasonal impact of extended holidays during the quarter (which typically result in a well-expected dip), but sales were expected to increase further in 4Q11E - possibly to levels approaching the record March 2011 levels (March sales were 82.1k units). If this proves to be the case, this would also entail upside to our current vehicle sales forecasts for the balance of the year (currently 180k units in 3Q11E, and 220k units in 4Q11E).

Action and recommendation

· ASII's share price has performed strongly in recent times, as the stock has played catch-up after an extended period of consolidation and (more recently) benefited from the lifting of residual earthquake-induced uncertainty as well as a strong push by the JCI to new highs. As a result, the stock is now trading only modestly below our Rp70,000 target price target, and we believe the valuation calculus is therefore beginning to become more challenging (16.1x FY11E PER, but closer to 20x for the automotive component of our valuation).

· However, we do not yet consider ASII to be demonstrably overvalued - particularly given that the risks to our FY11 estimates now look to be clearly on the upside. In addition, the stock is likely to be a continuing beneficiary of any ongoing "long Indonesia" flows, while monthly 4W volume prints are likely to continue surprise on the upside during 2H11E, in our view, which could act as additional positive catalysts.

· We therefore see it as risky to call a top at this stage and remain comfortable with our Outperform call, although we do caution that risks are increasing. We intend to review our earnings estimates and investment opinions following ASII's upcoming 2Q11E result.

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