CLSA Research Today: Astra (ASII IJ) upgrade, from SELL to OPF

Our Astra super bear turned semi-bullish on Astra (ASII IJ)…..Ummmm. Wilianto upgrades the stock from a SELL to OPF and our TP is raised from Rp13,500 to Rp27,000 (13x 10 PE). Admittedly, Wili has been too negative on the stock on the back of our previous 0.8% GDP forecast (recently upped to 3.7%). Indonesia’s economy has been a lot more resilient than most thought. Every business unit of Astra performed better than our expectation. United Tractors (UNTR I) continues to surprise on the upside, NPL in the car and motorcycle financing units barely move up during this crisis (interest rate trending down), and auto sales are not as bad as Wili feared.

Astra is THE proxy for Indo market and is a play on Chindonesia theme with its strong exposure to domestic consumption and effect of rising income from commodities. However, the sales desk thinks the stock is prone to a short term correction given its trading at 1sd of its 5 year historical mean. Would only accumulate on weakness. UNTR is a better option at this point. It is the biggest growth drive of Astra trading on multiples of a conglomerate.

Key points from the report:
We have raised our earnings by 19% in 2009 and 28% in 2010.
UNTR will continue to deliver strong result. Heavy equipment demand from mining sector remains strong. Pama (contract mining) also benefits from easing competition.
NPL in the financing unit: no spike. NPL of car financing remain below 1% against previous expectation of 3% while NPL in motorcycle financing subsidiary (FIF) remain low at 2.39% vs. expectation of 4%.
Auto sales: not that bad. We have changed our assumption of car sales from a 40% decline to 25% decline and motorcycle sales from 30% decline to 20% decline.
The motorcycle business (Astra Honda) is also facing strong competition from Yamaha.
Profit per unit sales of Astra Honda has declined from Rp1.5mn per unit to Rp0.7m in the past five years.
We still do not expect major recovery in auto sales in 2010 as GDP growth expectation remains below 5%.
Our TP of Rp27,000 is based on 13x PE 2010CL with the assumption of falling interest rate and Indonesia economy will hold up better than expected.