Astra Int’l (ASII IJ), cautiously optimistic - CLSA

Astra International (ASII IJ) held an analyst briefing yesterday.

In general, ASII management remains optimistic on auto outlook, but…flagging the risk of auto sales slowing down as higher vehicle taxes are rolled out.

Our analyst Sarina has been on the conservative side. We expect car sales to decline by 10% in 2011.

However, the following factors mean upside risk to our assumption:
· The staggered roll out of higher taxes by each province
· Potential further delay on the fuel subsidy lifting (please see the latest update on the news headlines section).

Another key takeaway from the meeting is that United Tractors (UNTR)’s numbers can be stronger than our initial forecast.

Sarina sees ASII as a key market proxy to Indonesia's compelling long-term story. Trading at 14.8x PE11, our TP Rp 64,000 implies 17% upside. Maintain BUY.

Other key points from the report:
· Final dividend of Rp1,130/sh brings total dividend to Rp1,600/sh for the year. 43% up from last yr's Rp1,120/sh. (to be approved at May AGM)
· 2M11 car sales strong at +32% YoY, but demand slowed by 5.9% MoM in Feb. Due to less working days and higher taxes (e.g., East Java)
· Stronger Rupiah will help offset higher raw material cost, will help to keep margins stable for next few months
o Expanding production capacity & distribution network:
o 80ha purchased for Astra Daihatsu 5yr expansion plan, with 1st stage of 100k units pa capacity up by end 2012.
o Honda bike production capacity raised to 4m units by Aug2011 from 3.5m units now
o UNTR: US$500m allocated for maintenance and acquisition capex
· Upside risk could come from: staggered roll-out of higher taxes by province and potential further delay on lifting fuel subsidy
· Trading at 14.8x PE11, TP of Rp64,000 implies 17% upside