Company update:
Astra International (ASII IJ, BUY, TP: IDR9,250)
Tailwinds To Lift Mining And Agribusiness Segments
Astra International (ASII IJ, BUY, TP: IDR9,250)
Tailwinds To Lift Mining And Agribusiness Segments
We see strong
tailwinds for Astra’s mining and agribusiness arms due to:
1.
Higher
coal prices and slower growth of labour costs for its plantation unit may lift
earnings;
2.
Hidden
value in its property arm (just launched in October) which may be unlocked once
its assets start to be monetized;
3.
Its
auto business is likely to maintain strong sales growth, boosted by lower
financing costs.
9M16 earnings were
broadly in line, and we expect earnings to recover in4Q16. Maintain BUY, with
an SOP-derived TP of IDR9,250 (from IDR9,000, 12% upside).
¨ Strong recovery. We expect Astra
International’s (Astra) heavy equipment arm, United Tractors (UNTR IJ, BUY, TP:
IDR24,700) to see a strong earnings recovery in FY17 on higher mining
contracting volume and fees, increased equipment sales to the mining sector, as
well as improved sales of spare parts and coal. Our channel checks indicate the
demand for heavy equipment from the coal mining sectoris starting to recover.
As it takes around three months from order to delivery, we think this improving
demand should begin to be fully reflected in sales numbers in end-2016 or early
2017.
¨ Slower labour costs growth. The surprisingly low
increase of the minimum wage for 2017 should boost Astra’s agribusinessAstra
Agro Lestari’s (Agri) (AALI IJ, NEUTRAL, TP: IDR17.400) earnings outlook, while
its policy to not do any new planting should gradually loosen cash flow. Oil
palm plantations is a labour-intensive business, where employee expenses make
up ~35% of total operating costs. We consider the Ministry of Manpower’s
announcement of a 8.25% increase in the minimum wage for 2017 to be low, vs the
double-digit percentage increases over the last five years.
¨ The hidden value of Astra’s property arm may
be unlocked once
its assets start to be monetised. Current projects consist of Menara Astra, a
mixed-use complex (office towers, Anandamaya apartments, a shopping centre)
located at a premium area in Jakarta’s CBD, and a 70ha township in apromising
locationin Cakung, East Jakarta. The outlook for these projects is positive.
¨ Auto’s strong growth likely to continue driven by lower
financing costs – in line with the softened Bank Indonesia benchmark rate. In
addition, motorcycle sales are likely to recover, driven by improved consumer
spending. The higher prices of commodities such as coal, CPO and coffee should
also boost incomes of people outside Java.
¨ Maintain BUY. Our SOP-derived
IDR9,250 TP implies a 19x FY17F P/E. The key risks to our call include weakened
consumer spending, the IDR depreciating against the USD and finance companies’
non-performing loans (NPLs).
Kindly click the following link for the full report: Astra International : Tailwinds To Lift Mining And Agribusiness Segments
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities Indonesia
