It is short-term negative volume impact from these new auto taxes (likely 12-15% increase in both car and motorcycle retail price), as volume recovery about 6 months lag. From Figure 1 & Figure 2 Sensitivity analysis, on the conservative combined case, 2010F earning is likely cut by 10% (depends on pricing strategy as Astra has buffer margin from IDR strengthening over past 12 months). Arief is calling an entry level is ASII share price declines by 10-15% ie Rp35,000-38,000 (@Rp35,000- implies 11.2x current 2010F PER). Automotive and Financial Divisions are 58% of SOTP and 75% of 1Q10 earnings. I continue to like ASII as Indonesia Core Holding given diversified Consumer/Resources earnings, largest market cap in JCI and strong management/balance sheet, and despite likely 2010F earnings cut the 2011F earnings impact is less as volume should recover in 6 months. I recommend short-term investors to Hold ASII for now.
· Arief Wana (Daily): After being delayed since the beginning of the year, our short-term cautious stance on the new auto tax system for Astra is gaining momentum, with the local government, led by Jakarta and East Java, currently mulling the discussions. Normally, this would be the last process before final approvals.
· The impact of the new auto tax system, if fully implemented, should increase auto prices (both cars and motorcycles) by 12-15%, in our view. There are four types of auto taxes in discussion, the biggest impact would be driven by the higher registration tax (from 10% currently to 15-20%).
· Our sensitivity analysis suggests that every 10% decline in car volumes (from our base case) would impact the bottom line by 2-3%, while every 10% decline in motorcycles result in an impact of 1.3-1.4%. Although Astra’s share price has dropped by 11% in the past two weeks (since our downgrade), we maintain our NEUTRAL rating. We would turn more positive if the stock were to retreat by another 10-15%.
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