Astra International - Firing on all cylinders - Macquarie

Event
§ ASII has announced another record quarterly profit, with 1Q11A adjusted
NPAT of Rp4,238bn rising 40.4% YoY and 4.2% QoQ, with the business
continuing to deliver broad-based operating momentum across most of its key
business units. In the process of reviewing the result, we transfer research
coverage from Ferry Wong to Lyall Taylor, and refresh our earnings
estimates. We maintain our Outperform call and Rp70,000 price target,
although trim our valuation slightly to Rp62,000 (from Rp65,000–75,000).

Impact
§ Another strong result: ASII continued to deliver robust profitability during
1Q11A, successfully capitalising on continued momentum in Indonesian car
and motorbike sales during the period (with ASII‟s car and bike volumes up a
previously-announced 26.8% and 32.0% YoY, respectively). Total automotive
income (including automotive components) comprised 48% of 1Q11A NPAT,
and grew 28.4% YoY, implying broadly flat per-unit profitability outcomes.
§ ASII‟s financial services division reported a somewhat more subdued 5%
increase in YoY consolidated EBIT, despite a 21% lift in the value of loans
financed, although saw associate income from Bank Permata increase
sharply by 44.4%. After the benefit from a reduction in ASF minority interests
(following the buy-out of GE‟s 47% stake in December 2010), total financial
services income nevertheless grew 25.2% YoY, and accounted for 18.5% of
total group earnings. Meanwhile, robust commodity prices saw ASII‟s heavy
equipment/agribusiness divisions lift earnings by a respective 43% and 140%.
§ 2Q11E car volumes to soften: ASII flagged that car volumes are likely to
soften in 2Q11E on the back of supply disruptions from Japan, and we are
anticipating a 26% QoQ decline (15% YoY). However, we are expecting the
impact to be short and sharp, with a V-shaped recovery expected to unfold
during 2H10A, possibly aided by the release of some pent up demand. Given
the publicity the supply disruption has already received from the media and
brokers, we are expecting any further share price impact on ASII to be limited.

Earnings and target price revision
§ We have instituted new earnings forecasts following our transition of research
coverage. Our updated FY11E numbers imply 14.6% YoY EPS growth, and
assume 3.4% and 11.2% ASII car and bike unit volume growth, respectively.

Price catalyst
§ 12-month price target: Rp70,000 based on a Sum of Parts methodology.
§ Catalyst: Monthly car and bike volumes; 2Q11E result (expected in July).

Action and recommendation
§ Outperform recommendation maintained: We believe ASII continues to
offer investors attractive and broad-based exposure to Indonesia‟s ongoing
economic development, and at a price (14.6x TTM PER, 13.8x FY11E PER,
3.9x FY11E P/BV) that we believe remains reasonable – even allowing for the
fact many of ASII‟s business units are currently very profitable and will likely
see margins and ROEs competed down somewhat over time.