Feb 19, 2016 08:30:39
ASII: Expect Better Sales Ahead Despite a Weak January

In January, Indonesia’s domestic 4W vehicle wholesales declined 9.9%
YoY while 2W vehicle wholesales fell 17.2% YoY. MoM, Astra lost market
share in 4W vehicle sales, but gained in the 2W market. Still, we think that
weak January sales do not represent its full-year performance, as we
expect it to record a recovery in the second half of the year. We lift our
SOP-based TP to IDR7,300 (8% upside), implying 15x/13x FY16F/FY17F
P/Es. A key risk is rising competition, especially in the low MPV segment.

Weak January sales do not represent full-year sales. Indonesia Auto
Industry Association (Gaikindo) reported that January domestic four-wheel (4W)
vehicles whole sales declined to 84,900 units. Meanwhile, according to the
Indonesia Motorcycle Industry Association (AISI), two-wheel (2W) vehicle
wholesales fell to 416,300 units. Astra International’s (Astra) vehicle wholesales
were also weak, in line with that of the national sales trend. MoM, it lost market
share in 4W vehicles which declined to 46.7% in Jan 2016 but grew its 2W
market share to 69.1% in the same period.

Expect better sales ahead. We expect 4W vehicle wholesales to grow 7.5%
YoY this year. We estimate the monthly sales volume at around 85,000 units, ie
the same as the monthly sales average in the second half of last year.
However, it should improve to around 95,000 units, driven by a further cut in the
BI rate in the second half of the year. As 1Q14-1Q15 domestic monthly sales
averaged around 95,000-100,000 units, we think our monthly sales estimates
are quite reasonable.

Still NEUTRAL, but with a higher TP. We changed our valuation methodology
to SOP (from target P/E) as SOP better reflects the valuations of Astra’s
different divisions. We value its automotive division based on DCF and DDM,
assuming a WACC of 10.2%, cost of equity of 14%, and terminal growth of 2%.
Our new SOP-based TP of IDR7,300 (from IDR5,650) values Astra at 13x
FY17F P/E, close to its 5-year average P/E.

Rising competition is a key risk. Rising competition in the industry is likely to
cap Astra’s 4W wholesales growth. Competition in the low-multi-purpose
vehicle (MPV) segment – Astra’s best-selling cars – is likely to remain intense.
In addition to competition from models made by existing manufacturers – such
as the Honda’s Mobilio, Suzuki’s Ertiga, and Nissan’s Livina – there is a new
player joining the fray. SAIC-GM-Wuling (SGMW) plans to build a new
manufacturing facility with production capacity of 120,000 units pa (ie 6% of
national capacity) near Jakarta. The SGMW plant is to start production of the
low-MPV in 2017.