Apr 12, 2017 12:37:07

Adi Sarana Armada ($ASSA): Moving forward

Improving used car prices since 2016, positive for rental business: Based on our market research, ASPs in the last few months on used Toyota Avanza (exhibit 5), the highest-selling MPV in Indonesia, are supportive of our view of a recovery in the secondary-car market in 2017. We note that the ASP on second-hand 2012 Toyota Avanzas in March improved 4.7% m-m or 5.5% y-y, to IDR134mn. Going forward, we expect the used car price improvement prevalent at the moment to be sustained, paving the way for a positive catalyst for ASSA’s vehicle-rental and auction businesses in 2017.

Strong rental growth likely to sustain utilization of 93.4% in 2017F:
For 2016 ASSA booked strong earnings of IDR62.1bn, up by 82% y-y, beating our and consensus expectations by 18% and 13%, respectively. The solid earnings improvement was largely attributable to higher operating profit of IDR256.2bn, up 20.5% y-y, on a strong performance from ASSA’s vehicle-rental segment. ASSA managed to increase its utilization rate to 93.4% in 2016, from 92.6% in 2015, with total fleet up 6.7% y-y to 19,199 units (from 17,991) (exhibit 6), supported by the company’s ability to retain long-term contracts, coupled with an efficient fleet-management system. For 2017, we expect ASSA to maintain its rental utilization rate at 93.4% and grow its fleet size to 20,900 units (+8.9% y-y), resulting in rental-segment revenue of IDR1.0tn (+15.7% y-y).

BidWin’s expansion likely into another 3 cities in 2017: ASSA’s car-auction segment, BidWin, plans to add new auction locations in 3 cities, namely Pekanbaru, Lampung and Banjarmasin. Currently, BidWin holds auction in 10 major cities, with weekly events in Jakarta and bi-monthly auctions in Surabaya, Medan and Balikpapan. BidWin managed to post strong performance in 2016 with the number of cars sold reaching 5,969 units (exhibit 7), in-line with our estimates. We expect BidWin to continue its solid performance and sell 7,000 cars (+17% y-y) in 2017. Moreover, BidWin is currently developing its own e-auction system in order to support its major expansion plans. This would increase BidWin’s economies of scale, target market as well as flexibility in the auction process without having to spend a sizeable amount on capital expenditures.

Recommendation: Reaffirm BUY call with a higher TP of IDR330
At this stage of the cycle, we continue to like ASSA given the recent improvement in secondary-car market prices, which we believe will drive the company’s rental segment growth over the medium term. Hence, we expect ASSA’s sharp YTD market outperformance to continue (exhibit 4), particularly as the outlook for the car-rental and auction businesses remain intact, in our view. We raise our 2017-18F earnings (exhibit 9) by 17-20% due to lower interest cost on the debt at 9.2% (from 9.75%), leading us to lift our 12-month TP to IDR330 (from IDR280), based on an unchanged 2017F PER of 12x. With 36% upside potential to our new TP, we reaffirm our BUY rating. Risks to our call would be lower-than-expected secondary market prices, a slower fleet expansion and lower utilization rates.