Equity Research Company Update Monday,13 March 2017 HOLD Maintain Last price (IDR) 8,150 Target Price (IDR) 9,000 Upside/Downside +10.4% Previous Target Price (IDR) 8,400 Stock Statistics Sector Bloomberg Ticker Automotive ASII IJ No of Shrs (mn) 40,484 Mkt. Cap (IDR bn/usdmn) 329,945/24,682 Avg. daily T/O (IDR bn/usdmn) 209/15.6 Major shareholders Jardine Cycle & Carriage 50.1% Estimated free float (%) 49.9 EPS Consensus (IDR) 2017F 2018F 2019F Danareksa 468.7 543.5 606.0 Consensus 477 531 625 Danareksa/Cons (1.7) 2.4 (3.0) ASII relative to JCI Index Astra International (ASII IJ) Limited Upside 2017 will be a better year for Astra International (ASII) and we anticipate higher earnings on the back of: a) stronger commodity prices and b) recovery at Bank Permata. Nonetheless, we maintain our HOLD since we expect flattish economic growth and rising inflation to reduce consumer purchasing power. This, in turn, will have an adverse impact on car and motorcycle sales. Our TP is raised to Rp9,000 (based on SOTP valuation). Moderate growth in car sales, but flat for motorcycle sales. With the expectation of flattish economic growth and rising inflation, consumer purchasing power is likely to remain weak. As such, ASII s management expects moderate growth in car sales of around 5% yoy to 1.1mn units. This growth will be supported by recovery in the commercial segment. On a less positive note, however, motorcycle sales are likely to remain flat. Mining business to support earnings growth. Thanks to sturdy coal prices, we expect the mining business under United Tractors (UNTR) to support earnings growth in 2017 on: a) 23.8% yoy higher Komatsu sales volume of 2,700 units, b) higher coal production (+5% yoy) and higher OB removal (+1 yoy) as well as lower discounts given to coal owners and c) a greater contribution from the construction of the Jakarta-Cikampek elevated toll road. Expect a turnaround at Bank Permata. After Bank Permata reported a loss of IDR6.5tn owing to rising gross NPLs of 8.8% in 2016 compared to 2.7% in 2015, the management foresees a turnaround in 2017 as it made provisions for loan quality risks. Hence, earnings are expected to show an improvement in 2017. More capex for heavy equipment and infrastructure. ASII plans to spend around IDR20 21tn in 2017, with IDR15tn on capital expenditure and another IDR5 6tn for direct investment. About IDR5tn of the planned capex will be allocated to the heavy equipment and mining business unit under United Tractors (UNTR), IDR2.2tn for its agribusiness, Astra Agro Lestari (AALI) and IDR1.5 2.0tn for its IT business. The remaining capex is for its infrastructure units to complete several toll road projects. Maintain HOLD with a higher target price of Rp9,000 (based on SOTP valuation) as we upgrade our TP for UNTR recently. But, the stock has limited upside and trading above its historical mean. Our TP implies 19.2x 2017F PE. Source : Bloomberg Stefanus Darmagiri (62-21) 29 555 831 stefanus.darmagiri@danareksa.com Key Financials Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Revenue, (IDRbn) 184,196 181,084 202,123 221,492 239,797 EBITDA, (IDRbn) 24,494 24,219 28,931 34,102 37,661 EBITDA Growth, (%) (10.2) (1.1) 19.5 17.9 10.4 Net profit (IDRbn) 14,464 15,156 18,975 22,003 24,531 EPS (IDR) 357.3 374.4 468.7 543.5 606.0 EPS growth (%) (24.6) 4.8 25.2 16.0 11.5 BVPS, (IDR) 2,520.6 2,765.3 3,046.9 3,356.0 3,690.2 DPS, (IDR) 216.0 168.0 187.2 234.4 271.8 PER (x) 22.8 21.8 17.4 15.0 13.4 PBV (x) 2.6 2.4 2.1 1.9 1.7 To develop infrastructure through toll road acquisitions going forward. The Dividend yield (%) 2.7 2.1 2.3 2.9 3.3 company plans to develop its infrastructure and logistics businesses by EV/EBITDA (x) 15.2 15.3 12.6 10.6 9.6 Source : ASII, Danareksa Estimates www.danareksa.com See important disclosure at the back of this report 1
increasing the total length of its toll roads to around 500kms over the next three years to generate more recurring income from toll roads in the future. ASII s subsidiary Astratel Nusantara currently has six toll road concessions covering a total length of around 342.8kms. Greater net profit contribution from non-automotive businesses. ASII s management is expecting a greater net profit contribution from its nonautomotive businesses of around 5. The company intends to achieve this goal by focusing more on its infrastructure and logistics businesses whilst also developing its property business. ASII s automotive business contributed about 60.5% of total net profit in 2016 (2015: 51.6%), while the infrastructure and logistics business and the property business contributed 1.7% and 0.7% of total net profit, respectively. Better automotive margin but still low. While the automotive EBIT margin has improved from 1.3% in 2015 to 2.2% in 2016, it is still low on an historical comparison (3.9% in 2014, 3.3% in 2013). Although car distributors have recently reduced their discounts, we expect the automotive margin to remain stable at its current level of around 2 3%. Exhibit 1. Most net income from the automotive business Exhibit 2. Better automotive EBIT margin, but still low 10 8 6 4 2 11% 11% 1 7% 1 3% 11% 16% 16% 15% 2 18% 17% 2 18% 22% 25% 5% 19% 19% 25% 51% 47% 49% 51% 61% 52% 44% 2010 2011 Automotive 2012 2013 2014 2015 Financial services 2016 Heavy equipment/mining Agribusiness Information technology Infrastructure and logistic Property 6% 25% 5% 2 4% 15% 3% 1 2% 1% 5% 1Q12 4Q12 3Q13 2Q14 1Q15 4Q15 3Q16 Automotive EBIT Margin (LHS) Automotive EBIT Contribution (RHS) Source: ASII Source: ASII Exhibit 3. Launch of new models improved Astra s market share in 2016 2015 Toyota 32% 2016 Toyota 36% Non Astra 5 Non Astra 44% UD Trucks Isuzu 2% Daihatsu 16% UD Trucks Isuzu 2% Daihatsu 18% Source: Gaikindo, ASII www.danareksa.com See important disclosure at the back of this report 2
Exhibit 4. Trading above its historical mean x 25 23 21 +2sd 19 +1sd 17 mean 15-1sd 13-2sd 11 9 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Source: Bloomberg, Danareksa Sekuritas Exhibit 5. SOTP Valuation Division Equity value, Rp bn Equity value attributed to ASII, Rp bn Contribution to total value, % Automotive Astra Parent Company 146,822 146,822 40.3 Astra Otoparts 8,184 6,547 1.8 Sub-total 153,369 42.1 Heavy equipment United Tractors 177,720 105,743 29.0 Sub-total 105,743 29.0 Agribusiness Astra Agro Lestari 35,607 28,371 7.8 Sub-total 28,371 7.8 Financial services Bank Permata 15,638 6,968 1.9 Astra Sedaya Finance 20,962 18,056 5.0 Federal International Finance 19,053 19,053 5.2 Sub-total 44,077 12.1 Others Astra Graphia 2,563 1,970 0.5 Others 31,034 31,034 8.5 Sub-total 33,003 9.1 Total equity value 364,565 100.0 Shares, mn 40,484 NAV/share, Rp 9,000 Source: Danareksa Sekuritas www.danareksa.com See important disclosure at the back of this report 3
Exhibit 6. Changes in assumptions New Previous Change (%) 2017F 2018F 2017F 2018F 2017F 2018F Domestic 4W sales (units) 1,114,822 1,170,563 1,170,351 1,287,386 (4.7) (9.1) Astra's 4W sales (units) 624,300 655,515 643,693 708,062 (3.0) (7.4) Astra's 4W Market share (units) 56 56 55 55 1.8 1.8 Domestic 2W sales (units) 6,000,000 6,300,000 6,771,762 7,448,938 (11.4) (15.4) Astra's 2W sales (units) 4,320,000 4,536,000 4,740,233 5,214,257 (8.9) (13.0) Astra's 2W Market share (units) 72 72 70 70 0.0 (0.0) UNTR's Komatsu (units) 2,700 3,000 2,500 2,800 8.0 7.1 UNTR's Coal Production (mn tonnes) 114 119 105 111 8.6 7.7 Revenue (IDR bn) 202,123 221,492 206,456 230,025 (2.1) (3.7) EBITDA (IDR bn) 28,931 34,102 28,036 34,009 3.2 0.3 Net Profit (IDR bn) 18,975 22,003 18,375 22,617 3.3 (2.7) Source: Danareksa Sekuritas www.danareksa.com See important disclosure at the back of this report 4
Exhibit 7. Income Statement Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Revenue 184,196 181,084 202,123 221,492 239,797 COGS (147,486) (144,652) (160,098) (173,528) (187,118) Gross profit 36,710 36,432 42,025 47,963 52,680 EBITDA 24,494 24,219 28,931 34,102 37,661 Oper. profit 17,212 17,534 21,111 25,453 28,146 Interest income 1,515 1,699 1,641 1,131 1,106 Interest expense (1,370) (1,745) (1,390) (1,403) (1,423) Forex Gain/(Loss) (291) (155) 784 445 767 Income From Assoc. Co s 4,467 3,349 6,092 6,925 7,676 Other Income (Expenses) (1,903) 1,571 198 198 198 Pre-tax profit 19,630 22,253 28,436 32,749 36,470 Income tax (4,017) (3,951) (5,687) (6,550) (7,294) Minority interest (1,149) (3,146) (3,774) (4,196) (4,645) Net profit 14,464 15,156 18,975 22,003 24,531 Core Net Profit 14,755 15,311 18,191 21,558 23,764 Exhibit 8. Balance Sheet Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Cash & cash equivalent 27,102 29,357 20,239 19,790 20,845 Receivables 53,005 56,126 60,866 65,062 70,640 Inventory 18,337 17,771 16,538 17,925 19,329 Other Curr. Asset 6,233 6,250 4,923 5,394 5,840 Fixed assets - Net 62,038 66,695 68,417 73,272 78,006 Other non-curr.asset 78,236 84,757 90,318 96,662 104,870 Total asset 245,435 261,855 262,201 279,005 300,430 ST Debt 36,202 45,820 38,787 35,100 34,496 Payables 27,633 30,085 30,241 32,778 35,344 Other Curr. Liabilities 12,407 13,174 13,174 13,174 13,174 Long Term Debt 34,447 25,090 16,367 17,609 18,896 Other LT. Liabilities 8,213 7,780 7,780 7,780 7,780 Total Liabilities 118,902 121,949 106,348 106,441 109,690 Shareholder'sFunds 102,043 111,951 123,348 135,863 149,393 Minority interests 24,490 27,955 32,505 36,701 41,346 Total Equity & Liabilities 245,435 261,855 262,201 279,005 300,430 www.danareksa.com See important disclosure at the back of this report 5
Exhibit 9. Cash Flow Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Net income 14,464 15,156 18,975 22,003 24,531 Depreciation and Amort. 10,895 3,889 7,819 8,649 9,515 Change in Working Capital 1,500 232 (2,024) (3,518) (4,861) OtherOper. Cash Flow (738) (1,076) (1,825) (1,426) (2,731) Operating Cash Flow 26,121 18,201 22,945 25,707 26,455 Capex (9,063) (8,546) (9,542) (13,504) (14,249) Others Inv. Cash Flow (1,212) (3,700) (2,346) (3,515) (4,055) Investing Cash Flow (10,275) (12,246) (11,888) (17,018) (18,304) Net change in debt 577 261 (15,757) (2,444) 683 New Capital 0 0 0 0 0 Dividend payment (8,744) (6,801) (7,578) (9,487) (11,001) Other Fin. Cash Flow (1,479) 2,840 3,160 2,793 3,222 Financing Cash Flow (9,646) (3,700) (20,175) (9,138) (7,096) Net Change in Cash 6,200 2,255 (9,118) (449) 1,055 Cash - begin of the year 20,902 27,102 29,357 20,239 19,790 Cash - end of the year 27,102 29,357 20,239 19,790 20,845 Exhibit 10. Key Ratios Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Growth (%) Sales (8.7) (1.7) 11.6 9.6 8.3 EBITDA (10.2) (1.1) 19.5 17.9 10.4 Operating profit (14.6) 1.9 20.4 20.6 10.6 Net profit (24.6) 4.8 25.2 16.0 11.5 Profitability (%) Gross margin 19.9 20.1 20.8 21.7 22.0 EBITDA margin 13.3 13.4 14.3 15.4 15.7 Operating margin 9.3 9.7 10.4 11.5 11.7 Net margin 7.9 8.4 9.4 9.9 10.2 ROAA 6.0 6.0 7.2 8.1 8.5 ROAE 14.6 14.2 16.1 17.0 17.2 Leverage Net Gearing (x) 0.4 0.4 0.3 0.2 0.2 Interest Coverage (%) 12.6 10.0 15.2 18.1 19.8 Source : ASII, Danareksa Estimates www.danareksa.com See important disclosure at the back of this report 6