Feb 29, 2016 14:37:24
Astra International ($ASII): Proxy for Indonesia’s long term consumption story
- FY15 core earnings declined 19% yoy, with earnings disappointments from United Tractors and its financial services.

- Auto division saw another quarterly improvement in margins helped by new models launches and lower discounts, but overall group earnings visibility remains weak.

- Sell rating maintained.

Investment Summary
1) FY15 core earnings of Rp15.6tn missed expectations, declining 19% yoy. 4Q15 headline profits of Rp2.5tn fell 47% yoy, -37% qoq dragged by large impairments (UT’s coal asset) and lower contribution from United Tractors (core earnings fell -27% qoq) as operating volumes remained weak while Bank Pertama’s loan impairment (NPLs rose to 1.7% for FY15) also weighed on the
financing segment associate’s contribution to the group (core earnings fell -60% qoq).

2) FY15 estimated divisional earnings breakdown: Auto (52%), Financial (25%), Heavy equipment/mining contracting (16%), Agribusiness (3%) & infrastructure/logistics/others (4%).

3) Auto the only bright spot – Auto was one of the bright spots in the group, with encouraging growth in 4Q15 core earnings (+10% qoq). Positives last quarter included sequential improvement in auto dealership margins and improving performance (auto profits gained 14% qoq). Operating margin improved to 1.5% last quarter, but remains well below previous cycle average.

4) Sell rating maintained - Despite the improvement in the auto segment, overall group’s earnings visibility remains poor with drag from non-auto businesses. Apart from the credit deterioration in its financial business, we would also monitor for more concrete monthly auto demand trends improvement in the meantime, following the disappointing January volume numbers where 4-wheelers and 2- wheelers declined 10% and 17% respectively. Potential re-rating catalysts include economic recovery which may improve outlook for auto sales momentum, easing competitive dynamics and stabilizing profitability trends within its main segments.