Astra International Key takeaways from results briefing

Astra International: Key takeaways from results briefing (ASII, Neutral, Rp8,050, TP: Rp7,900)

ASII held an Analyst Briefing yesterday, discussing the recently released FY12 results and the outlook for 2013. In overall, management’s broad outlook is similar to our view, with neither significant upside nor downside apparent to our and consensus earnings forecast for 2013. We are reiterating our Neutral call and Rp7,900 TP (refer to our latest Company Focus report “No surprises in 4Q12” on 1 March 2013). Key highlights from the analyst briefing are summarized below.

Where are we heading in 2013? Management in overall remains cautious on 2013, underpinned by challenges faced in the 2W division on the full implementation of LTV ruling towards sharia financing, and the heavy equipment division. 4W is likely to remain the key engine together with the financial services division. On a positive note, management indicated its optimism that this year’s high investment (Rp15tn capex budget versus Rp13bn actual spending in FY12) would be fruitful for 2014 performance.

4W outlook – Management admitted the rising competition in the 4W space, with massive investments coming from new and existing auto principals. ASII would focus on strengthening its value added services and continuous products innovation to maintain its market share. It was further indicated that a new improvement in best-selling Toyota Avanza/Daihatsu Xenia is underway. On a positive note, management mentioned that the rising competition would benefit its auto components subsidiary as almost all auto principals have decided to make Indonesia as another production base.

LCGC update – Management confirmed that the LCGC regulation has been finalized, pending final approval from the President. Mr. Sudirman M. Rusdi, the CEO of Astra Daihatsu Motor and the Chairman of Gaikindo, commented that the final signing of the Presidential Decree is expected to come through in mid-March, after the President’s return from his overseas trip. He stated further that the Ministerial Decree would follow suit a month after, which means that ASII would start delivering Daihatsu Ayla and Toyota Agya to consumers starting early May, about two months from now. Since the cars were launched in September 2012, backlog orders have reached about 30,000 units as of mid-January 2013, which is considered strong. ASII nevertheless decided to stop selling the cars since then, following delays on the government regulation. With first delivery in May, management conservatively expects to book around 40,000-50,000 units of sales for LCGC this year (versus 30k backlog as of mid-January), compared to our 60,000 units assumption. Despite the lower ASP, management clarified that LCGC should generate similar operating margins given the lower operating expenses.

2W outlook – Since the new LTV ruling was implemented last year, management admitted that it has used sharia loophole as the solution. As a precaution, however, ASII decided to increase the sharia down-payment from 8% on average to 13%. Thus, the company is quite confident that this precautionary step would help mitigating the impact from the closing of sharia loopholes starting 1 April, which require a 20% DP on 2W financing (another 7% more from the current average DP). Maintaining a solid market share amidst industry decline would be the key focus for Astra Honda Motor. As such, it plans to strengthen its market share on the less-sensitive upper-segment motorcycles model (i.e. scooter and sports segment), as well as continuously launch new products. In overall, Honda’s market share is targeted to increase to 60% this year (from 58% in FY12 and 53% in FY11), slightly higher than our 59% target.

Commodities arm – Management’s target for Komatsu sales volume remains unchanged at 5,000 units, in-line with our heavy equipment’s analyst forecast of 4.9k units assumption. Admitting the uncertain coal mining outlook, UNTR would continue to focus on increasing the revenue contribution from spare parts sales and services, as well as heavy equipment demand from the infrastructures development that normally picks up one-year ahead of the election. On AALI side, management mentioned that it is completing a 700,000 tons p.a. CPO refinery in West Sulawesi next year.

Infrastructures division – Management expects earnings contribution from this division to go up, driven by the contribution from the toll road division. In FY12, its Tangerang-Merak concession (72.5km) reported a 15% rise in traffic volumes to 37mn vehicles, while ASII also expects the commencement of the Mojokerto-Kertosono section (41km) in 2014. Asides from the power plant business, management further mentioned over possibilities of extending its business towards industrial estate.

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