Multistrada Arah Sarana (MASA IJ; BUY; TP IDR 700): 1H11 Results Review – Barely in Line - OSK

MASA’s 1H11 net profit was in line within our estimates at IDR122bn (+36% y-o-y or-16% q-o-q), comprising 47% of our FY11 numbers. However, the profit was partially bolstered by a higher-than-expected forex gain of IDR53bn. Revenue hit IDR1,378bn (+37% y-o-y or +10% q-o-q), making up 44% of our income. We expect a better 2H11 considering: i) MASA is still in the midst of expanding, and ii) raw material prices fell in mid-2Q11, which may result in better gross margin in the following quarters. We maintain our BUY recommendation and roll over our DCF to one based on FY12. Our new target price, at IDR700, implies 16.5X-13.8x FY11-FY12 earnings. The counter is currently trading at 12.7X-10.6X FY11-FY12 earnings.

Margin narrower as expected. The gross margin in 2Q11 fell to 17.6% compared with 19.9% in 1Q11, which was still within our expectation, as rubber and oil price jumped 19% and 15% respectively in 2Q11 (a 2-month lag). In contrast, as the two commodities’ prices eased by 15% and 3% respectively in 3Q11 (a 2-month lag), we expect gross margin to improve in 2H11 and remain at this higher level at 20.2% for FY11. In addition, MASA also plans to increase prices by another ~5% in the middle of this month.

Volume still increasing, but lower than expected. 2H11 sales volume for passenger car (pcr) tyres and motorcycle (mc) tyres reached 3.2k (+3% q-o-q; 41% of FY11 forecast) and 1.6k (-3% q-o-q; 39% of FY11 forecast), respectively. While still up slightly, the 2Q11 pcr volume is a tad below our expectation. Thus, we are taking a conservative approach and reducing our FY11 pcr sales volume assumption by 5% to 7.4k units from 7.8k units previously. Mc sales were down marginally but this was due to MASA’s decision to focus on expanding the production of more pcr tyres in 2Q11. As for installed capacity, that for mc tyres reached 16k units/day, which gives MASA the flexibility to cope up the lag in volume in the subsequent quarters. As such, we have only moderated our numbers for mc tyre volume by only 3%.

Forecast adjustment. We also changed our USD/IDR assumption to IDR8,500/USD from IDR8,750/USD. Overall, this changes our FY11-FY12 net income forecast by +1.1% and -12.3%, respectively

Maintain BUY. We maintain our BUY recommendation and roll over our DCF to 2012, and arrive at our new target price of IDR700, which implies 16.5X-13.8x FY11-FY12 earnings. The counter is currently trading at 12.7X-10.6X FY11-FY12 earnings.