Mansek ASII Winds of change

Winds of change

Recent visit to Astra International revealed our common view for 2009. Namely, (a) double-digit declines in car and motor sales, (b) tightening credit and (c) possible brand equity shift among consumers. Without much deviation from our views, we stick to our Buy recommendation on Astra International, which we also think is an investment gateway for plantation and heavy equipment. At our implied PER09F 9.1x, the stock trades at a 9.1% discount to the broader market multiple.

Downhill drive for vehicles. On a worst case scenario, ASII is looking toward a 30% drop in both car and motor sales in 2009, slighty more conservative than our estimates of about 20% and 25% decline for the respective segments. Tell-tale signs shows that a number of buyers have forfeited reservation fees and altogether cancelled vehicle orders in January. Likewise, with higher inventory on hand at distributorship level, ! waiting t ime for indent orders for MPV’s such as the Innova and Avanza has been reduced to 3 weeks from 2 months as of last year. It is no surprise that January car sales could reach no more than 35k units (-15.4%yoy and -10.5%mom).

Flight towards brand quality. In this current downturn, ASII benefits by virtue of brand quality which would help boost its vehicle market share albeit lower domestic demand. To recall, back in 2005-06, when interest rates were high, its market share expanded to 52.8% from 52.2% for 2-wheelers and to 54.8% from 48.5% for 4-wheelers. Plus, in light of the current global problems of other manufacturers, preference shift could widely favor Astra’s brands among the buying public.

Maintain Buy, gateway for plantation and heavy equipment as well. For those looking for a diversified investment play, Astra is an indirect channel on plantation and heavy equipment as about 33%-37% of pre-tax earnings is derived from the two segments. Currently, it trades at PER09F of 6.3x, a discount to subsidiaries United Tractors (heavy equipment) and Astra Agro Lestari (plantations) with current PER09F of 8.0x and 12.1x, respectively. Ma! intain Bu y at TP of Rp17,900/share with current price still offering a 43.8% upside.