UBS Astra is key beneficiary of the stimulus plan

Astra is key beneficiary of the stimulus plan
We think Astra International is the main beneficiary of the government stimulus package including the corporate tax rate cuts and the expected improvement in consumer purchasing power. The stimulus package improves the outlook for car and motorbike sales, in our view.

Lower corporate tax rates
— The company will be subject to a lower tax rate of 28% in 2009 and to25% in 2010. This is not specific to Astra International. Other companies will enjoy the same facilities. There are exceptions, such as: 1) those in the oil and gas/ mining sector as their tax rates are fixed and governed by the respective contract of works; b) those in the property sector for whom the tax is calculated off the property revenue rather than pre-tax income; and c) those in the shipping sector as they are not regulated by the Indonesian tax laws.
— Astra will specifically enjoy an additional 5ppt lower tax rate because its free float is more than 40%. This will be relevant for about 30% of its taxable income directly contributed by the parent company (15% of consolidated net profit) and United Tractor (15% of consolidated profit after minority interest). In our estimate, this implies an additional 1.5ppt lower effective tax rate. Another company that we believe might enjoy the same 5ppt lower tax benefit is Bank Central Asia.

Better consumer purchasing power
— 25% lower fuel prices. From Rp6000/litre at the beginning of November 2008, the government has cut the domestic fuel price to Rp4,500/litre. We estimate this will lower monthly fuel expense by Rp30,000 per month for active motorbike users. Since bus fares have not declined accordingly, we also argue this increases the economics of buying a motorbike versus using public transportation. We forecast a 20% decline for Astra’s twowheeler sales in 2009.
— 5-10% lower personal income tax rate and the simplification of the tax layers. This will benefit all fixed-income consumers enabling them to afford either a motorbike (typically Rp500k/month instalment), or a Toyota Avanza (typically Rp3m/month instalment). We expect a 30% decline in four-wheeler sales in 2009.
— More specifically, the government policy changes actually benefit those with higher salary more. Therefore we believe the policy will benefit four-wheeler sales more than two-wheeler sales, other things being equal.

We estimate that under the government stimulus, those with a net takehome pay of Rp20m/month (US$1818/month) will get 12% higher salary. Those with Rp5m/month (US$455/month) will get only 2.6%. All these stimuli raise our conviction that the 2009 auto downturn would be short-term in nature with a recovery as early as H209. In other words, we think 15-20% sustainable demand growth could resume in 2010.

We maintain our Buy rating on Astra International. The stock is trading at 9x 2009E of what could be bottom-cycle earnings. Our sensitivity analysis suggests that Astra’s earnings would be 8% higher should auto sales decline 10% less than the decline currently assumed.