20140430-Maybank_KERPL-Traces_of_rising_competition_12页_616kb

Astra International (ASII IJ) Summary

Core Content

Astra International (ASII IJ) reported a 1Q14 net profit of IDR4.73tn, up 9.7% YoY but down 20.6% QoQ. The company's share price is IDR7,475, with a target price of IDR8,000 (+7%). The market capitalization is IDR302.6T, and the free float is 49.9%. The company's major shareholder is Jardine Cycle & Carriage, holding 50.1% of the shares.

Main Points

• Share Price and Valuation: The share price is currently IDR7,475, with a target price of IDR8,000, indicating a 7% increase. The valuation is at 14.7x PE 14F, which is not considered cheap.
• Earnings and Growth: The 1Q14 results are in line with expectations, contributing 22.5% to the full-year forecast. Core EPS grew by 8% YoY and 14.8% in FY15E. Net dividend yield is expected to increase to 3.4% in FY16E.
• Divisions Performance:
  • Automotive: The automotive division faces rising competition, leading to margin pressure. EBIT margin dropped to 2.4% in 1Q14, the lowest in 17 quarters. The division accounted for 43% of Astra's earnings in 1Q14.
  • Agribusiness: This division is a bright spot, with Astra Agro's earnings more than doubling to IDR785bn. Factors include better production, IDR depreciation, and higher CPO prices.
  • Heavy Equipment: Strong performance from United Tractors, with a 40% YoY increase in net profit. However, this is not expected to be sustainable due to weak coal prices.
  • Financial Services: Earnings declined 5% YoY due to margin compression and a higher loan book. There is no sign of NPLs due to tighter loan-to-value regulations.

Key Information

• Revenue and EBITDA Trends:
  • FY14E revenue is expected to reach IDR210.4bn, with EBITDA at IDR28.7bn.
  • FY15E and FY16E projections show continued growth, with EBITDA expected to reach IDR32.4bn and IDR34.2bn respectively.
• Earnings Breakdown:
  • Core net profit for FY14E is IDR20.97tn, with a 8% YoY increase.
  • The core P/E ratio is projected to decrease from 15.6 in FY12A to 11.3 in FY16E.
• Financial Metrics:
  • Net debt/equity is expected to decline from 57.3% in FY12A to 22.8% in FY16E.
  • Free cash flow is projected to increase, reaching IDR18.17tn in FY16E.
• Market Performance:
  • Astra's share price has shown a positive trend over the past 12 months, with a 1.0% absolute increase.
  • The company's performance relative to the market was 4.8% over the past year.
• Dividend Policy:
  • Net DPS is expected to increase from IDR198bn in FY13A to IDR253bn in FY16E.
  • The payout ratio remains stable at around 38.3% across the forecast period.

Outlook and Recommendations

• Recommendation: Maintain BUY with a target price of IDR8,000.
• Competitive Landscape: The automotive sector is highly competitive, and Astra may lose market share in the next 3 to 5 years. The introduction of new models and the expansion of production capacity by new and existing players is expected to continue.
• Future Earnings: Earnings growth is expected to slow due to the maturity of the motorcycle division and the saturation of the automotive market.
• Sustainability Concerns: The strong performance of United Tractors is not expected to continue due to weak coal prices and unsustainable mining practices.

Summary Table

Key Highlights

• Earnings Momentum: Slowing down due to rising competition and market saturation.
• Market Share: Astra may lose market share in the automotive sector in the coming years.
• Sustainability: The strong performance of the agribusiness and heavy equipment divisions is expected to continue, but the automotive division's performance is under threat.
• Dividend: The net dividend yield is expected to increase, supporting investor appeal.
• Valuation: Despite the slowdown, the company is still considered a BUY due to its strong performance in other divisions and the potential for growth in agribusiness.