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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.

Sep 22,2016 08:25:20

Adi Sarana Armada ($ASSA): Car auction visit note: Stable Avanza-Xenia secondary prices
Our recent visit to ASSA’s car auction division (exhibit 7), BidWin, has provided greater insight into Indonesia’s car auction business and the current scene of the secondary car market, particularly for Toyota Avanza and Daihatsu Xenia.
§  Avanza-Xenia prices not affected by Calya-Sigra launches: Contrary to recent reports, our car auction visit indicates that ASII’s newly launched 7-seater LCGC models, Toyota Calya and Daihatsu Sigra, have not disrupted Avanza-Xenia’s used car prices. According to BidWin’s management, Avanza-Xenia’s used prices have been stable, unaffected due to Calya-Sigra’s different market segmentation. Additionally, within the used car market, leading brands remain with Avanza and Xenia, supported by ASII’s strong after-sales service and cheaper spare parts compared to their nearest rival, Honda Mobilio. From our visit, we learned that 2012 Toyota Avanza 1.3 G MT units were sold between IDR118-120mn (exhibit 6), in line with pricing of cars outside car auctions of IDR128-130mn, which reflects used car dealers’ required margins of IDR10mn/car, or a c.8% premium versus auction prices. That said, our recent survey on Avanza’s used car prices (exhibit 5) confirms stable market value despite launches of the 7-seater LCGCs back in August.
§  Preference for ex-ASSA cars on fast availability of legal documents: Based on our channel checks at the auction, customers prefer ex-ASSA rental cars due to full car-maintenance records and fast availability of complete legal documents, allowing dealers to quickly offload their new purchases. This is important to provide the legal basis for dealers in selling used cars in a timely manner while complete service history provides additional value towards the cars’ selling prices. Hence, both factors result in high demand for ex-ASSA car rental units.
§  BidWin’s 2016 major expansion from 2 to 10 cities: BidWin recently underwent a major expansion on the number of its branches and auction schedule. Currently, BidWin holds auctions in 10 cities (exhibit 10) with weekly events in Jakarta, compared to 2015’s bimonthly auctions in just two cities: Jakarta and Surabaya. In terms of volume, BidWin targets the number of auctioned cars to significantly rise by 64% y-y to 11,500 units in 2016. We believe BidWin is in line to achieve its target, as the 1H16 number of cars auctioned has surpassed the full-year 2015 figure of 7,000 units.
Outlook: E-auction scheme development, the first of its kind
BidWin is currently considering whether to develop its own e-auction scheme (like eBay) in order to support its major expansion plans. This would increase BidWin’s economies of scale, target market and flexibility on the auction period/process without having to spend heavy capex.
Recommendation: BUY with unchanged TP of IDR220
On stable Avanza-Xenia used prices and BidWin’s strong performance, ASSA’s strong ytd market outperformance (exhibit 4) should be sustainable. Thus, we reiterate our BUY rating and 12M TP of IDR220, implying 17% potential upside and a 2017F PE of 10.4x, a 10% discount to regional peers (exhibit 11). Risk: Lower used car prices due to new car launches on intense competition.    


Jul 13,2016 09:34:17
Adi Sarana Armada ($ASSA): Wheels not turning
Online taxi opportunity unlikely to boost earnings: Our recent meeting with ASSA’s management to discuss a potential new source of growth from the online taxi business was disappointing, as the company is not keen to expand in that segment. As of now, ASSA has only secured a contract with UBER Indonesia for 25 cars, with a contract period of 2 years and a monthly rental price of IDR5mn/car. Besides that, ASSA has no plan to increase the number of contracts due to management’s belief that the online taxi business is unlikely to benefit the company. Online taxi companies are only interested in renting cars without driver leases, posing operational risk in terms of lower utilization rates, as online taxi drivers can unexpectedly leave and cars would be returned to ASSA. This note marks a transfer of analyst coverage.

Used car price trend only up on seasonality: Higher competition in the low MPV segment in the past 2 years has lowered the used car price for Avanza models, which form the majority of ASSA’s fleet (45-50%), which has resulted in a lower used-car revenue contribution from 19.7% in 2013 to only 11.9% in 1Q16 (exhibit 5). The trend in Avanza’s used car price (exhibit 6) shows stagnant pricing in the past year, which has only increased due to high demand for cars in the lead-up to the Lebaran festivities. Thus, management thinks the used-car segment is unlikely to boost the company’s income from the fleet disposal of its car rental business.
Focusing on logistics and auction business to support growth: Despite the economic slowdown, ASSA managed to book flat 1Q16 logistics revenue of IDR70.1bn, +0.7% y-y (exhibit 7). On a more positive note, ASSA’s revenue related to its newly operated auction business rose 156% y-y in 1Q16 (exhibit 8). Thus, the logistics and auction businesses, which contributed 19.2% and 0.6% of 1Q16 revenue, remain growth supports for ASSA, particularly given the current unfavorable rental and used car sales outlook.

Outlook: Lower cost of funds   
ASSA’s outstanding debt mostly uses a floating rate scheme, with a net gearing level of 202% as at 2015. According to management, ASSA currently has a cost of debt of 9.5%, much lower compared to the industry’s average of 11%. This lower interest rate trend is likely to persist to the benefit of ASSA, according to management. A lower cost of funds would cut ASSA’s car rental business IRR, creating greater opportunity to increase its fleet size and help maintain the company’s position as the second-biggest car rental operator in Indonesia (exhibit 9).
Recommendation: Downgrade to REDUCE with lower TP of IDR90
Given ASSA’s disappointing decision to not to pursue opportunities in online taxi rentals, we now expect 2016 earnings to grow just 3% y-y, although rising more substantially by 24% y-y in 2017. As such, we lower our 12M TP to IDR90 (from IDR130) based on a 2017F PE of 7.0x, around a 30% discount to TAXI’s ($TAXI) valuation at its TP. With 22% downside potential, we cut ASSA to REDUCE from Buy. Risks: higher used-car prices and a larger revenue contribution from the online taxi business.


Aug 12,2015 20:37:40
Indonesian Transportation: In a jam

Threats from private-car taxis and … : On the back of new transportation mobile application services, the Indonesian taxi business is facing a plethora of challenges ahead in the form of fewer drivers available and weaker customer demands (exhibit 5). Based on our study, UBER’s normal tariff, with no traffic jam, is around a third cheaper than taxi fares (exhibit 10). Additionally, these new competitors are here to stay as the transportation ministry has granted temporary operational licenses, while the government is still drafting new regulations for e-commerce business. UBER, operating in 57 countries (exhibit 9), commenced its Indonesian operations in mid-2014 focusing on Jakarta. Now it has around 700 operating units in Jakarta with expansions to Bali and Bandung. UBER collaborates with rental companies in Indonesia and taps into their under-utilized cars for its operations. Normally, UBER collects a 20% service fee on all passenger payments with the rest going to drivers, which may be split with owners of car rental companies in some cases.

… motorcycle-taxi mobile services: On the motorcycle-taxi front, we expect new applications to gain government support, especially in Jakarta, as they may help reduce the number of cars on the streets and ease traffic jams. Go-Jek, an Indonesia-based local mobile application, has experienced phenomenal growth (exhibit 14) due to high consumer demand for its services (exhibit 13), and is now supported by around 14k drivers in Jakarta. In fact, our channel checks reveal that many taxi drivers have migrated to become Go-Jek drivers due to its flexi hours and up to 50% higher incomes for drivers (exhibit 10). A Go-Jek driver can generate a net income of around IDR5-7mn/month, assuming 25 working days and a daily income of around IDR200k-IDR280k. On the contrary, a taxi driver may only earn a monthly income of around IDR2.7mn-IDR3.5mn, based on our market survey. Hence, Go-Jek is extremely popular, forcing the company to limit the number of driver applications to 300 drivers per day due to the high interest from potential joiners. We believe this concept has a great deal of potential going forward, as Jakarta’s Governor, Ahok, is supportive of this service, which he sees as aligned with his vision of making Jakarta a smart-city with less traffic congestion. We think that this application is attractive to low-to-middle-income people as a “business-partnership”, charging only 20% of total revenue as service fees, with simple requirements to join (exhibit 12).

Reiterate sector UNDERWEIGHT, cutting all TPs
The threat from these mobile services is worse for Blue Bird ( $BIRD ) than Express Transindo Utama ( $TAXI ) as BIRD’s revenues are 100% based on its drivers’ incomes, which would decline as UBER and Go-Jek enter the fray. As we also expect fewer drivers to be available, we forecast lower utilization rates ahead, causing earnings downgrades (exhibits 6 and 7). We lower our TPs for BIRD to IDR5,500 (from IDR7,400) and TAXI to IDR520 (from IDR820). Thus, we retain our UNDERWEIGHT sector rating with unchanged REDUCE ratings for BIRD and TAXI, despite their severe market underperformances ytd (exhibit 4). For Adi Sarana Armada ( $ASSA ), we trim our 2016F earnings (exhibit 8) as we expect more difficult operating conditions, resulting also in a lower TP of IDR140 (from IDR150). However, we retain our BUY rating on ASSA due to the cheap PE valuation of 6x for 2016F and 18% upside potential to our new TP.
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Adi Sarana Armada Tbk.
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