UBS Beneficiary of aspiration consumption

Astra International (Astra) is one the key stock picks in Simon Smiles’

Q-Series®:
Asian Structural Themes

report focusing on consumption in Asia, published on 4 February 2009. We believe Astra fits into the “Stage of development” theme, inn that aspirational consumption is a key trend. Buying a motorcycle is a major aspirational consumption item in Indonesia.

􀂄 2009 outlook: a sharp slowdown Motorcycle and car demand is cyclical, depending on credit availability. Given tight bank liquidity, particularly in H109, we forecast a 20% and 30% decline in motorcycle and car sales, respectively, in 2009.

􀂄 Medium-term growth attractive Investors should focus on medium-term growth, stemming from aspirational consumption and low penetration, in our view. From 2010, we forecast car and motorcycle sales growth to return to a sustainable rate of 15-20% pa. We believe the government’s stimulus package (Rp71trn–1.5% of GDP) will accelerate the timing of the recovery.

􀂄 Valuation: maintain price target of Rp15,300 We derive our price target of Rp15,300 from a sum-of-the-parts valuation. Astra is trading at 9x 2009E PE, with 2009E earnings 35% lower than 2008, which we believe reflects the expected downturn in the auto industry in 2009. Our price target implies 11x 2009E PE, which is conservative, in our view.