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ASII - Initiate Coverage

WAITING FOR A SHED OF LIGHT

A LITTLE BIT SLOW

As of 9M19, ASII car sales slipped by -7% (yoy) to around 396,000 units, which is quite justifiable, considering that industry sales dropped by -12% to 754,000 units. We view that weaker car sales were due to GDP growth deceleration that has led to slower business activities. Indeed, global uncertainty, coupled with presidential election period, has resulted in higher risk aversion and subsequently lower consumptions. As a result, ASII’s 9M19 automotive revenue declined by -2.7% (yoy), which we think, contributed to the sluggish stock price. Going forward, our FY19 estimate for automotive revenue stood at Rp104.5T, a -2.6% (Y/Y) slip from last year’s achievement at Rp107.3T.

 

COAL OUTLOOK LOOKS UNCERTAIN

Two of ASII business lines: HEMCE and Agribusiness, rely heavily on the change in commodity price. For UNTR, Komatsu sales have been slow, which were below its previous achievement at ~2,600 units vs. ~3,700 units last year, as of 9M19. Indeed, we see lower coal price had become headwinds for heavy machinery sales in light of lower demand from China as one of the biggest coal users in the world. Yet, confidence is the exact word to describe our minds, as UNTR’s gold mining business gave a sigh of relief for the company in light of its thick margin. Still, a question remains whether trade war will have subdued in 1-2 year-time, being the main compass for coal-related business outlook. For 2019F, we expect HEMCE to post Rp86.5T of revenue (+2.2% yoy).

 

GOVERNMENT’S SUPPORT

For agribusiness, headwinds stem from external factors, thanks to India slapping higher tariff for Indonesia CPO and European Union’s deforestation issue. However, the government’s plan to increase biofuel mixture to 30% should support CPO price by the earliest 2020; thus, we are quite confident that plantations’ outlook should be brighter next year. Our FY19 estimate of Agribusiness revenue stood at Rp16.5T (-13.7% yoy).

 

VALUATION

We initiate coverage on ASII with BUY recommendation and TP of Rp7,460/share, after BNLI pestment. We arrive at the target price by utilizing SOTP valuation method, as we believe such approach should reflect the differences in ASII’s business line nature. The TP implies 12-month P/E of 12.0x and P/B of 1.4x.

Wed December 18Th, 2019

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