Astra reported weak 1Q15 results with net profit of Rp4.0trn, down 15% QoQ and 16% YoY and accounting for 19% of our and 20% of consensus' FY15 forecast, respectively. Operating profit reached Rp3.7trn, down 32% QoQ and 24% YoY and accounting for 17%/18% of Citi FY15E/consensus. Weak results were attributed to the weak profit on agribusiness (-75% QoQ and -80% YoY), infrastructure/logistics (-76% QoQ and -35% YoY) and automotive (-37% QoQ and -21% YoY). On the flipside, financial services (+26% QoQ and +21% YoY) and heavy equipment (+171% QoQ and +3% YoY) divisions reported decent results. Financial service and heavy equipment divisions now represent 30% and 25% of Astra’s net earnings in 1Q15 respectively.
- Automotive distribution operating margin reached 0.4% – Auto’s distribution operating margin continued to decline in 1Q15 to 0.4% from 1.5% in 4Q14 and 1.8% in 3Q14 (see Figure 1) due to weak 4W and 2W demand and intense competition in the 4W segment. This was the worst operating margin for more than 15 years. 4W and 2W volume fell 21% and 12% in 1Q15 respectively. We believe the 4W distribution margin may have reached negative territory.
-Contribution from equity income is -19% QoQ and -14% YoY – Equity income (mainly from manufacturing) reached Rp1.29trn, accounting for 18% of our FY15 forecast (see Fig. 1). This is due to weak performance across companies in equity income except for Bank Permata (+4-fold QoQ and 35% YoY). Equity income now contributes 32% of Astra International’s total net profit.
-Implications — We maintain our Neutral call on the stock as we believe that the outlook for the 4W segment will remain tough due to competition from Honda and Suzuki while CPO and coal prices remain in depressed territory. Catalysts will be 1) rebound in coal and CPO prices; 2) relaxation on the down payment requirement for auto financing and 3) less competition in the 4W segment. ASII