Astra Intl, Regulatory pains, CLSA

Looming regulatory risks have caused market concern on Astra’s future
earnings despite a sterling FY11 result. Our worst case scenario points to
a 15% downside risk to its earnings due to these risks. However, our
best case scenario points to a 21% upside. We also believe Astra can
maintain its dominance; it is an incumbent play, but still an aggressive
one. Future upside to come if demand unleashes on auto and as UT’s
business expansion unfolds. O-PF, at 13.5x PE12 and 11.8x PE13.


Looming regulatory risks
Solid FY11 results with revenue and profit rose 25% and 24% YoY to Rp162tn
and Rp17.7tn, respectively, beating estimates by 3%. Nonetheless,
regulatory uncertainties (fuel price hike and potential higher down-payment
(DP) for auto financing) clouded the sentiment for Astra. Our sensitivity
analysis shows a worst case scenario of 15% downside risk to our 12CL
earnings, assuming a +33% in fuel price which will trigger inflation rising to
~6% and DP of 30% which will impact auto demand. Our best case scenario
translates into a 21% upside risk to earnings assuming both potential
regulations are scrapped and interest rate to come down further.
Our base case scenario means minimal fuel price increases with DP at 20%
(which is the current norm for 4W financing). Moreover, note that not all
regulations are bad: import tariff for cars have declined and government’s low
cost car initiative will make cars more affordable in the future.

Astra to maintain its dominance
More upcoming potential launches by competitors in MPV segment to compete
with Astra. Nonetheless, we believe Astra can maintain its dominance in the
medium term given its successful and early product launching, expansion in
network, supported by good after-sales services and a strong brand equity.
Low car penetration also ensures that there is enough pie for everyone.

Maintain positive view on Astra
Recent correction in share price has reflected the regulatory risks. We
lowered our TP to Rp80,000 to reflect this. However, we maintain a positive
view; we see future upsides if demand unleashes on auto and as UT’s
business expansion unfolds. Astra’s different businesses provide a natural
hedge to earnings. Final dividend of Rp1,380/sh is proposed, hence total
dividend becomes Rp1,980/sh (45% payout). Astra now trades at 13.5x
PE12 and 11.8x PE13, lower than peers ave. but providing higher ROE.

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