Company update: Astra International (ASII IJ, BUY, TP: IDR8,200), Agro and Contract Mining Boosted 1Q14 Earnings

Please use the following link to download the report:

http://rhbosk.ap.bdvision.ipreo.com/NSightWeb_v2.00/Files/GetFile.aspx?FileVersionID=17872&ieHack=.&_nsz=54%3B54%3B10b01c08-9557-4fa6-80e8-afdd3b4b3d9d%3Ben-US%3BSE%20Asia%20Standard%20Time

Company update:

Astra International (ASII IJ, NEUTRAL, TP: IDR8,200)

Agro and Contract Mining Boosted 1Q14 Earnings

Astra International 1Q14 earnings came in line with our expectation, achieved IDR4.7trn (+10% y-o-y), reached 22% of our full-year forecast. Higher 1Q14 earnings were boosted by agribusiness which benefited from higher CPO price, also contract mining as coal volume rise. However, earnings from automotive declined – despite higher sales volume – which driven by higher sales discount. We upgraded our TP to IDR8,200 as we lowered our WACC to 11.3% (from 12.1%).

¨       Boosted 1Q14 earnings from agribusiness and coal mining. 1Q14 earnings increased 10% y-o-y to IDR4.7trn – achieved 22% of our full-year estimates, in line with our expectation – thanks to higher earnings from agribusiness and contract mining. Agribusiness’ 1Q14 earnings – which benefited higher CPO price – jumped to IDR625bn (+120% y-o-y), while heavy equipment’s earnings – which benefited from higher coal mining contract – increased to IDR959bn (+39% y-o-y).  

¨       Although higher sales volume, auto earnings came lower. ASII’s 1Q14 4W vehicles sales volume increased 12% y-o-y (to 173k units), while its 2W vehicles sales volume rose 4% y-o-y (to 1.3m units). However, ASII’s 1Q14 automotive sales were flat at IDR27trn (+1% y-o-y), while earnings declined to IDR2trn (-5% y-o-y), due to higher sales discount which caused auto EBIT margin narrowed to 2.4% in 1Q14 from 2.8% in 1Q13. In addition, earnings contribution from Astra Otoparts (AUTO IJ, NR) declined as ASII’s interest on the company declined to 80% from 96%.

¨       Upgraded TP. We see that auto sector long-term outlook is still promising despite rising competition in the short-term. We raised our target price to IDR8,200 – which implies to 18.0x-15.5x FY14-15F P/Es as we lowered our WACC to 11.3%, from previously 12.1% which in line with lower risk-free which declined to 8% from 9%.

Best regards,

RHB OSK Indonesia Research Institute

Disclaimer: This message is intended only for the use of the individual or entity to whom it is addressed and may contain information that is confidential and privileged.  If you, the reader of this message, are not the intended recipient, you should not disseminate, distribute or copy this communication.  If you have received this communication by mistake, please notify us immediately by return email and delete the original message.  This message is transmitted on the condition that the recipient accepts the inherent risks in electronic data transmission and agrees to release RHB group and PT RHB OSK Securities from any claim which the recipient may have as a result of any unauthorized duplication, reading or interference with the contents herein. The contents herein are made in the personal capacity of the above-named author and nothing herein shall be construed as professional advice or opinion rendered by RHB group and PT RHB OSK Securities or on its behalf.