Astra International; Good start to the year; ; Rp55,600; TP Rp65,000; ASII IJ - DBS Vickers

At a Glance
· 1Q11 net profit surged 42.8% yoy to Rp4,303bn, well ahead of market expectations of Rp3,924bn
· Auto production to slow in 2Q
· Maintain BUY and TP of Rp65,000

Comment on Results
Astra International (ASII) reported 1Q11 net profit of Rp4,303bn (+42.8% y-o-y, +7.5% q-o-q), well ahead of market expectations of Rp3,924bn. 1Q net earnings met 26% of our FY11F earnings estimate. Upside surprise came from a combination of higher net earnings from its automotive division (Rp2.1tn +28% y-o-y), a big jump in non-operating income (net) of Rp441bn (from Rp197bn in 1Q10), and lower-than-expected effective tax rate of 18.5% (consensus 20.5-22.5%). Specifically, on its automotive division, both sales of 4W and 2W reached new record highs, with 4W +27% y-o-y to 125k vehicles and 2W +32% y-o-y to 990k units. At the bottomline, ASII’s net margin improved 0.9% ppt y-o-y to 11.1%. On a positive note, ASII’s well-diversified business portfolio was well-positioned to defend its margins, mainly via its agribusiness & mining.

Recommendation
After the surprisingly strong 1Q11 automotive sales data and higher net earnings, we expect consensus estimates to trend upwards. However, the upside potential in earnings will be limited by slowing auto production in 2Q. Disruption to global automotive manufacturing caused by Japan earthquake will have varying effects across Asia . In fact, according to the latest information, we estimate that about 27K units of its domestic production (ex. import) will be lost during the year. While the company still finds it difficult to determine the full potential damage from the disaster, we maintain our current forecast for now. The counter is currently trading at 13.6x FY11 PE, 28% lower than its peak valuation from