Wilianto maintained our OPF recommendation Astra International (ASII IJ), despite 5 year high valuation of PER 14.5x09CL and 13x 10CL. Astra managed to survive the global crisis unscratched, thanks to 46% earnings growth at United Tractors (UNTR IJ, see below), low NPL in its auto financing division, and moderate down turn in car and motorcycle sales. We upgraded earnings forecast by 18%-22% in 2009/2010 and raised the TP Rp38,000 (from 27,000).
It is worth highlighting that Wili does not assume car sales to go back to the 2008 peak in 2010. Historically, it did not happen after previous sharp downturn and there is no new model offering that can act as a new catalyst. However, Wili is more bullish on motorcycle sales, projecting Astra motorcycle sales to reach all time high in 2010.
The whole point is there is a structural change happening in the financing side of the industry and per capita income is also reaching a take-off point. Thus, history is an interesting guide but not necessarily a determinant of future demand. We think Wili is probably underestimating growth over the next two years and we'll be revisiting our forecasts again in 2010.
One structural change that is about to happen is BCA (BBCA IJ)’s plan to enter motorcycle lending in 2010. We think BBCA’s move is very important and may act as a catalyst for national motorcycle sales, assuming they will undercut the competition.
Interestingly, our on the ground motorcycle dealer survey (by our research assistant Mita) suggests that motorcycle dealers NEVER really direct potential buyers on which financing companies to take. This should be positive for new player such as BBCA. We understand that BBCA are entering into a 65/35 JV with the previous management of leading motorcycle finance company WOM Finance (WOMF IJ). We think this is a smart entry into the market through existing relationship/experience with the dealers that ex WOMF management already has, shortening the learning curve for BBCA.
United Tractors: Paying for performance – upgrade earnings, downgrade rec to OPF, new TP Rp18,600 , from Olie
We like to focus a bit on the new ministerial decree on mining contractor that was passed at the end of SBY’s old cabinet (last month) as we’ve been getting a lot of questions on this. We believe that weakness to UT and the other heavy-equipment plays such as Hexindo (HEXA IJ) is a good opportunity to add position. Why?
1.The ministerial decree will not be implemented for some time as it allows a grace period of three years so further negotiations will take place
2.Confusion occurred because the decree allows for the process of overburden removal (stripping) and transport to be done by the mining contractors (this amounts to 90% of the contract value).
3.But the actual mining has to be done by the coal concession holder. Apparently, after further digging, we found that the decree does not prohibit the coal companies to ‘lease’ equipment from the coal contractors so this restriction too can be overcome.
4.The decree actually benefits independent contractors such as United Tractors as the use of related-party and foreign contractors would be limited.
Key highlights from the report:
We have revised our earnings estimates up by 5% to 15% over 2009-11 to reflect strong volume and margin. IDR appreciation is, however, an offsetting factor as UNTR is a US Dollar earner.
· We continue to like UT for exposure to Indonesian coal production growth, but valuations look a bit stretched as it is trading 2010 PER of 14x and EV/EBITDA of, 7.5x closer to its 1-SD average historical multiples.
· We lower our rating from BUY to Outperform. TP is set at Rp18,600, suggesting 13% upside.
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