CLSA No recovery in sight, Astra International (ASII IJ)

No recovery in sight, Astra International (ASII IJ), a must read report from Wilianto. Raising earnings by 12% in 2009, TP Rp13,500 (fr Rp9,000). Maintain SELL.

Wilianto was too conservative in his Astra call, in our view. The stock has gone up a whopping 65% since his downgrade to UPF in Nov08. Well, it looked like the world was falling apart back then. But since then the price of CPO, which is the largest estate crop in Indo, already up by 60-70% and commodity prices in general has been off the lows. This is obviously positive for ASII, which is often seen as a proxy for Indonesia.

However, it looks like a lot of it seems to have been priced in. Indo sales team has been bullish on ASII, mainly due to our bullish view on commodity and Indonesia. But the stock is now trading at 11.6x PE 10CL, which is at par to the market while it should trade at 20-30% discount as a conglomerate. While we at the sales desk have been more optimistic on Astra, we are also turning more cautious now.

Wili has raised his ASII earnings by 12% to Rp6.6tn in 2009 on the back of strong performance of United Tractors (UNTR IJ) – btw, Wili has been right on his BUY UNTR call. Despite the fact that 1Q09 UNTR results can’t be annualized (helped by weaker rupiah in the quarter), Wili still has to upgrade his ASII forecast and UNTR factor accounts for 2/3 of our earnings upgrade in ASII (the rest comes from upgrade in AALI forecast and we lower Astra Honda numbers by 15%).

Other businesses:
Financial services (20.5% of ASII profit in 1Q09) look OK, NPL remains under control at 2.6% for motorcycle and below 1% for car.
We have embedded a higher numbers for Astra Agri (AALI IJ) to reflect higher CPO prices. AALI contributed 8.6% to ASII net profit in 1Q09.
Car (28.6% of ASII profit in 1Q09) showed resilient profit in 1Q09, helped by inventory gain and one off gain from asset sale.
Motorcycle (10.2% of profit in 1Q09): a very competitive environment. Industry utilization only 60-65% currently vs. near full capacity in 2008.The table and the chart below will give you a better picture of the very competitive environment in the motorcycle business.