Indomobil Sukses Internasional weak but expected

Indomobil Sukses Internasional: FY12 weak, but expected (IMAS, Buy, Rp5,500, TP: Rp6,150)

We reduced our TP on IMAS from Rp6,550 to Rp6,150 as we incorporate weak FY12 results into our model. We retained 80k units of Nissan sales assumption this year, but lowered operating margins to factor in dealerships roll-out. Weak 4Q12 was largely anticipated, and does not really make a difference given the tender offer price floor protection. We retain our BUY call. Downside is protected, while upside could be rewarding, in our view. Post-acquisition, Salim should also have more incentives to grow IMAS.

Weak FY12 results were partially driven by Nissan dealership expansion that was not supported by pick-up in sales volume. This year, Nissan would continue to expand its dealership by opening 20-25 outlets from the existing 85 outlets. The 24-29% growth in dealership number would lead to higher cost/sales, as we only expect a 19% volume growth for Nissan. We slashed FY13F operating margin assumption to 3.8% from 4.1%, but still expecting an improvement YoY.

While it is painful in the short term, expanding dealership network is the key to long-term success in the Indonesian market. It enables Nissan to strengthen its secondary market, a key to win both consumer and corporate customers. The decision to continuously expand, despite declining market share, is also the right one, paving the way for the launching of Datsun LCGC in early 2014.