MacQ Astra International: Still too early to turn positive

Astra International: Still too early to turn positive

Kenneth Yap (analyst) attended Astra’s analyst meeting last Friday. He upgraded ’09 and’10 EPS by 8% and 3% (’09 P/E of 7.5x with 13% growth in ‘10), to factor-in estimate upgrades by Sunaina Dhanuka on Astra Agro Lestari (AALI IJ, Rp11,850, U/P, TP: Rp7,800). The implied P/E of the auto and motorcycle business is now 4.7x 2009E earnings, which are at the bottom end of the 4–9x historical trading range. But Macquarie is bearish on CPO price and CPO stocks, while Ken sees no imminent positive catalysts on Astra. No change to Underperform rating.

Within the Astra group, we prefer United Tractors: strong pricing power, increasing coal contracting market share, better inventory management, cheap on 6.2x 2009E P/E..

Key points:
(1) Wholesale unit shipments for auto & motorcycles rose MoM in February 2009. The pick-up was due to inventory restocking with end-market sales remaining flat MoM in February.
(2) 7% general price increase in auto & motorycle in January to reflect Rp10,800/US$1 exchange rate (now Rp12,050, so Astra would need another 5-10% price increase just to sustain margins).
(3) Downshifts to cheaper (and less profitable) models in the light of the challenging economy.