Event: With the positive macro developments (interest rates, consumer confidence, purchasing power and political stability) and our channel checks to dealers, we have revisited our earnings outlook for Astra International.
View: We are more positive on the earnings outlook. We believe that auto sales volumes are set to rebound, especially for cars, driven by: 1) a reversing trend for ASPs, 2) positive macro economy and 3) pent-up demand. While we expect YoY growth to remain in negative territory, we have upgraded our volume growth outlook to -20% (from -32%) for cars and -10% (from -20%) for motorcycles. We have found that credit quality has surprised on the upside. We are cautious on competition in the motorcycle market, but the good news is that Astra's motorcycle division is no longer significant to the group's earnings, with cars comprising the largest part. On balance, we upgrade our forecasts by 9-10% for FY09-10E, with our forecasts 12-17% above consensus forecasts.
Catalyst: Strong earnings momentum (driven by a high leverage impact from volume recovery) and positive macro developments are the key catalysts for the share prices. Other catalysts include rising commodity prices, such as crude palm oil (CPO) and coal.
Valuation: Despite the strong share price performance, we remain positive on Astra International. We have upgraded our sum-of-the-parts based target price by 7% to Rp26,900 (from Rp25,200), implying FY09-10E P/Es of 11.9-13.5x and 13% potential upside. We note, however, that during the peak historical trend, the stock traded as high as 12.5x, equivalent to a target price of Rp28,300.
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