Friday, September 28, 2012

Mining headwind

Mandiri : ASII

We reduced Astra International (ASII) to Neutral as we lowered our TP to Rp7,350 after incorporating our major downgrades at United Tractors (UNTR). Concerns over UNTR’s continuous dissapoinment could cause some overhang on ASII’s share price, in our view, which has performed relatively well lately. On a 12-month basis, ASII’s PE is now at a 5.2% premium to UNTR, versus a 5-year average discount of 13.0%. Despite the mining headwind, we are nevertheless still a strong believer on the broad automotive story, underpinned by ASII’s first-mover advantage into the LCGC segment.

Major downgrades on UNTR. With a bearish view on the coal production outlook in FY13F, our heavy equipment analyst cut UNTR’s EPS by 12.3% in FY12F and 27.2% in FY13F. Predicting flat growth at PAMA’s FY13F production volume and further decline in Komatsu’s sales volume, we are now aiming for a decline of -11.3% in UNTR’s FY12F EPS and -0.2% in FY13F. For further details, please refer to our full-note Company Focus report “Bracing the storm” dated 26 September 2012.

Reduced ASII to Neutral. Incorporating lower UNTR contribution, we reduced ASII’s EPS by 2.1% in FY12F and 5.4% in FY13F. Accordingly, we lowered our SOTP-derived TP on ASII by 7.0% to Rp7,350 (previous: Rp7,900), implying 14.2x FY13F PE. At current price, ASII trades at 13.9x FY13F PE, versus JCI at 12.9x. ASII has performed relatively well this year, as compared to UNTR. On a 12-month forward basis, ASII’s PE discount to UNTR has diminished significantly this year. It is now trading at 5.2% premium to UNTR, versus a 5-year average discount of 13.0%.

Automotive side remains constructive. Despite downgrading ASII to Neutral, we remain constructive and excited on the group’s first-mover advantage into the LCGC segment. We estimate up-to 5% EPS upside from the new Daihatsu Ayla and Toyota Agya. Though prices are still subject to the government’s tax incentives, customers can start ordering these two models, with deliveries likely in early FY13F. Daihatsu’s new 100,000 units annual assembling capacity will also be ready for completion soon, enabling ASII to overcome the debottlenecking capacity before mass-producing the new LCGC. We may revisit our 4W earnings forecasts on ASII after seeing more lights from the government’s upcoming LCGC regulation, enabling us to estimate the potential volumes and ASP for the cars.

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