automotive sector neutral - assa rent · pt trimegah sekuritas indonesia tbk – 1 sector focus │...

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 1

SECTOR FOCUS │ 13 December, 2017

Automotive Sector Limited Industry Growth We expect 2018 4W competition to remain tight and financing

constraints to linger due to rise in 4W NPL. 2W sector should book

relatively higher growth (still single digit level) vs 4W next year due to

its beneficiary from rise in commodity activities, although the impact to

Astra International (ASII) earnings should be mild. Note that ASII is the

only sizeable & liquid option to invest in the auto-related space. We

downgrade sector to Neutral (from Overweight).

Moderate risk and reward

We view 2018’s economic growth recovery (especially in mining regions) coupled

with low inflation level should support the growth for 2018 auto sales (+5% for

4W and +8% for 2W). Potential fuel price increase at gas station level is a risk to

auto demand that is worth to monitor as global crude has risen 11% YTD.

4W: The stiff competition story just never ends

Over the past 4 years, non-commercial 4W competition has never revealed its

true winner shown from Honda’s fierce launches back in 2014-16 in the low

MPV/SUV market, ASII’s low-end LCGC penetration through Calya/Sigra and

Mitsubishi’s emergence as a leading low-SUV player recently through Xpander.

ASII has tried to book growth from lower ticket items (LCGC), albeit at the

expense of lower margins and NPL has risen as to cater low-end market. 4W

industry is currently facing oversupply in 2H and if history repeats itself (massive

4W inventory at dealer level in 2014), we may see ASII’s 4W operating margin

decline in Jan-Feb 2018. We expect 2018 4W industry to book single digit growth

of +5% YoY driven by LCGC and commercial vehicle segment.

2W and commercial vehicles: Beneficiary of rise in mining activities

We expect 2W industry sales to grow +8% YoY driven by relatively strong

demand from mining regions thanks to positive effect from rise in commodity

activities. Furthermore, we see higher-ticket 2W items are gaining popularity

from the low-mid end buyers (eg; Yamaha Nmax priced at ~RP25m/unit). Now

NPL risk is relatively low in the 2W sector vs 4W (historically 2W had higher NPL).

We expect 2018 commercial vehicle sales to grow +10% YoY driven by large

replacement cycle from the mining sector. Note 9M17 commercial vehicle sales

volume increased +16.3% YoY, contributing 21.5% of 4W national sales volume.

ASII is the only viable option in the auto space

We maintain our Neutral call for ASII, yet slightly upgrade TP to Rp8,600. We

downgrade our call for MPMX to Neutral (from Buy) as share price already rallied

by +110% since our conviction call back in 13 July 2016. For ASSA, its ability to

gain market share in the 4W rental business and maintain high quality fleet

management is not reflected on its undemanding valuation in our view. However

MPMX and ASSA have relatively poor share price liquidity. Downside risk is lower

than expected demand due to further deterioration in purchasing power. Upside

risk to our call is higher than expected impact from commodity recovery.

Companies Data

Ticker Price Mkt

cap TP Ups. Call

EPS growth

(%) P/E (x)

EV/EBITDA

(x) P/BV (x) ROAE (%)

(IDR) (IDR

bn) (IDR) (%) 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019

ASII 8,200 331,965 8,600 4.9 NEUTRAL 15.2 7.2 15.0 14.0 12.3 11.4 2.4 2.2 17.0 16.6

MPMX 980 4,374 1,050 7.1 NEUTRAL 0.6 19.8 9.8 8.2 7.6 6.9 0.7 0.6 8.8 8.4

ASSA 210 713 350 66.7 BUY 38.7 15.5 5.7 5.0 5.1 5.7 0.7 0.6 12.3 13.0

Willinoy Sitorus [email protected] 021 - 2924 9107 Jeffrey Jap [email protected] 021 - 2924 9018

NEUTRAL

Sector Market Cap Weighting

ASII98.5%

MPMX1.3%

ASSA0.2%

200.4

2.0 0.10.0

50.0

100.0

150.0

200.0

250.0

ASII MPMX ASSA

Average 3 months trading liquidty

(Rp bn)

http://www.trimegah.com/

Ronald Sugiharto


Table of contents

Macro and Industry Risks and Rewards Pg. 3

4W Competition is tight and Likely to Remain Tight in 2018 Pg. 6

Beneficiaries of Rising Commodity Activities Pg. 8

Company update

Astra International (ASII) Pg. 11

Mitra Pinasthika Mustika (MPMX) Pg. 20

Adi Sarana Armada (ASSA) Pg. 24



Macro and Industry Risks and Rewards

Auto sales sticky to GDP, albeit an enemy to interest rate hike

In automotive industry, GDP growth and interest rates are the key macro variables that one must focus on. Auto sales

growth correlate with GDP growth while auto sales growth de-correlate against interest rates. It took 8 financial quarters

(3Q14 to 2Q16) for 4W sales to recover after the economy suffered high inflation level (high inflation eventually leads to

higher interest rates) which was triggered by increase in fuel price back in June 2013 (from Rp4500/litre to Rp6,500/litre).

On the other hand, we have not seen 2W recovered since then. We think tumbling commodity price during the period was

the key culprit of the 2W slowdown. Yet, we sense 3Q17 2W sales is a turnaround point as 2W managed to book a strong

+18% YoY growth, which is the first QoQ growth booked since back in 2Q14. We believe the lagging effect from commodity

price recovery (eg; Coal) will eventually be positively felt by the 2W sector in 2018. We highlight several key factors that

enhance auto sales deviation against GDP and interest rate figures which are higher loan to value (LTV) ratio, low fuel price

at gas stations, rise in commodity price, lower financing rate (especially for 2W) and tax incentive to auto players.

Figure 1. 4W national sales growth vs GDP growth Figure 2. 4W national sales growth vs JIBOR

Source: Gaikindo, BPS, Trimegah research Source: Gaikindo, BI, Trimegah research

Figure 3. 2W national sales growth vs GDP growth Figure 4. 2W national sales growth vs JIBOR

Source: AISI, BPS, Trimegah research Source: AISI, BI, Trimegah research

Is LTV increase a good policy to stimulate auto growth?

BI has been conducting studies on modifying LTVs based on product, region and customer profile rather than just simply

breaking LTV based on 4W/2W. Historically, LTV regulation was designed by Bank Indonesia (BI) back in 2012 as to manage

the risk of multi-finance players (there were several financing players pre-2012 provided zero down-payments (DP) to

customers). However in 2015, the Govt tried to loosen DP requirement for auto purchases in order to stimulate growth but

eventually did not bring any significant impact to auto demand. In 2016, the Govt continued to relax the regulation

requirement based on companies’ level of non-performing financing (NPF) but not much impact as well. We believe the

loosening of DP requirement has a lagging effect to auto sales and impact to demand should be soft as the platform of LTV

has already been loosened up to the 85% to 95% level.

4.20%

4.40%

4.60%

4.80%

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5.80%

-25%

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4W national sales growth, YoY JIBOR 1 week - end of quarter (RHS)

2%

11%

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13%

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-7%

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-29%

-11%-9%

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2W national sales growth, YoY Indonesia's GDP growth, YoY (RHS)

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2W national sales growth, YoY JIBOR 1 week - end of quarter (RHS)



Figure 5. LTV ratio for the auto sector - 2012 vs 2015 vs 2016’s policy

Source: OJK, Bank Indonesia

Beware of fuel price increase

Our analysis suggests that current Ron 88 fuel price type is sold -21% lower than our economical price estimate of

Rp8,300/litre at fuel stations in Java-Bali area. This has been causing a financial burden to the nation’s oil and gas arm,

Pertamina. We do not rule out the possibility that fuel price at gas station level may gradually increase going forward in

order to reduce financial burden of Pertamina. Even if the Govt does not increase fuel price for political reasons, investors

would have to price-in risk into ASII and other auto share prices in our view. Our Economist views that inflation level is at

risk if oil price exceeds $75/barrel level. Hence, we think a de-rating is likely to happen if this occurs. Note that the strong

inflation level back in 2005 (+17%), 2008 (+11.1%) and 2014 (+8.4%) suggests that a +1% inflation level contributed to a

-1.6% decline in auto (4W and 2W) demand.

Figure 6. Fuel economical price vs current price at gas stations

Current price at gas station* Estimated economical price Current price to (Rp/litre) (Rp/litre) estimate economical price

Ron 88 6,550 8,300 -21% Solar 5,500 6,300 -13%

Source: BPH Migas, Trimegah Research *Java-Bali area

2W 4W (non-productive)Date

implemented

Conventional loan

Financial companies 80% 75% Jun-12

Banking 75% 70% Jun-12

Syariah

Financial companies 80% 75% Jan-13

Banking 75% 70% Jan-13


implemented

Conventional loan

Financial companies (NPF <5%) 90% 85% 2015

Financial companies (NPF >5%) 85% 80%

Banking 80% 75% 2015

Syariah


Financial companies (NPF >5%) 90% 80%

Banking 80% 75% 2015


implemented

Conventional


Financial companies (NPF >1% - <3%) 90% 85% 2016



Syariah




Financial companies (NPF <5%) N/A N/A 2016



Figure 7. Ron 88 fuel price vs inflation


Figure 8. Ron 88 price growth/decline plays a large role to inflation level


How will electric vehicle change the 4W industry in Indonesia?

The govt is pushing electric car developments as part of its concern in making more environmentally friendly transportation.

The govt targets market share for electric cars to reach 20% by 2025. Note that electric vehicle sales are focusing more to

hybrid cars, which is already something that already exists in Indonesia (eg; Toyota and Honda have been producing hybrid

cars). We believe this will be done on a gradual basis given lack of incentives provided by Govt, no clear infrastructure road

map to support charging stations, electric/hybrid cars still relatively expensive. Thus, we think electric vehicles are unlikely

to have a material impact on Indonesia’s auto earnings and valuations in the next three years.

Figure 9. Govt’s electric vehicle target

Description 2025 2050

Electric filling/recharging station Unit 1,000 10,000

Electric 4W sales Sales/year (unit) 2,200 4,200,000

Hybrid 4W sales Sales/year (unit) 711,900 8,050,000

electric 2W sales Sales/year (unit) 2,130,000 13,300,000

Source: Ministry of ESDM 2017, Bisnis Indonesia

1,810 1,810

4,500 4,500 4,500 5,000

4,500 4,500 4,500 4,500

6,500

8,500

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Ron 88 fuel price (Rp/litre) - end of year Inflation, YoY (RHS)

(Rp/litre) Significantfuel price

hike

fuel price hike

fuel price hike

fuel price hike

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Ron 88 fuel price growth, YoY Inflation, YoY (RHS)



4W Competition is tight and Likely to Remain Tight in 2018

We expect 4W industry sales to grow +5% YoY driven by LCGC and commercial vehicles. Back in 2014 to 2016, Honda (4W)

successfully introduced new 4W launches to fill in product lines in-between the price gap of Astra International’s (ASII)

Avanza and Innova. In 2H16 to 2017, Astra introduced LCGC (Calya/Sigra) to penetrate the lower-end market. Eventually

higher portion of LCGC to ASII’s 4W sales became a backfire to its financing arms (TAFS, ASF) given higher exposure to

lower credit quality customers. In 2017, a new competitor, Mitsubishi Xpander, enters the low MPV/SUV market. ASII

responded to this by launching new Rush/Terios. This new model is not a ‘game changer’ though as we believe interest level

in this new model is low. We would be more optimistic in ASII’s market share next year if ASII launched a new version of

Toyota Avanza/Daihatsu Xenia (ASII’s flagship model in MPV segment). There have been no public reports of such new

model though and at this point a launch of new Toyota Avanza/Daihatsu Xenia in 2018 is unlikely at this point.

ASII also provides financing for both 4W and 2W segments. We are increasingly more concerned of higher provisioning for

4W loans. Approximately 80% of LCGCs (Low Cost Green Cars) customers bought their cars using financing. We observed

that many of these customers are low-end buyers that were able to buy the LCGCs on credit because of low down payment

(approximately IDR13m down payment) but may have trouble paying the installments. LCGC is increasingly important driver

of 4W volume, and now accounts for 22% of national 4W sales in 10M17, higher compared to 14% in 10M14.

Figure 10. 4W national sales, 2013-2018F

Source: Gaikindo, Trimegah Research

Figure 11. % LCGC sales to total 4W sales, 10M14-10M17




How large is the 4W inventory pile at dealer level?

The 4W industry is currently facing large inventory pile at the dealer level including ASII’s brands (eg; Toyota). This

suggests large price discounts by end of this year that may linger to Jan-Feb18. Our on the ground channel check suggests

that MPV price discounts have climbed up from 6% in Jun17 to 8% in Nov17. Also, LCGC price discounts have climbed up

from 3-4% level in May16-Sep17 to ~7% in Nov17. ASII owns a distribution subsidiary called “Auto 2000”, which accounts

for ~45% of Toyota’s national sales. Note that although there is seasonality (discount tends to climb slightly towards end of

year), this year’s increase is higher than normal.

Figure 12. Wholesale sales – retail sales, Jan ’14 - Oct ‘17


Figure 13. MPV price discount, May ’16 – Nov ‘17 Figure 14. LCGC price index, May ’16 – Nov ‘17

Source: Trimegah Research on the ground survey Source: Trimegah Research on the ground survey

4%4%

4%5%

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MPV price discount

4%3%

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7

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7

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17

Aug-1

7

Sep-1

7

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17

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7

LCGC price discount



Beneficiaries of Rising Commodity Activities

2W growth story

We expect 2W to grow +8% YoY next year, relatively higher vs 4W’s +5% YoY growth. This is driven by driven by stronger

demand ex-Java areas partially thanks to expectation on generous non-cash subsidies and lag effect from rise in commodity

activities. Our analysis suggests that in 2016 and 9M17, 2W sales booked low growth correlation to coal price. Coal price

hiked significantly while 2W sales have been relatively flat. We think it is only a matter of time before we see some recovery

in 2W demand. We understand penetration rate is already quite high for 2W (~40% level). Yet in the long-run, we still see

some upside on higher demand for premium 2W scooters. The reason is that we see strong demand for 2W ticket items at

the Rp20-30m/unit level. This is higher compared to the average price of ~Rp15m/unit. This started off when Yamaha NMAX

launched in 2015 selling a premium scooter ranging at the ~Rp25m/unit level. 9M17 Yamaha NMAX sales contributes

4.3%/20% of National and Yamaha sales respectively. Now, Astra Honda Motor (AHM) is planning to launch Honda PCX

(local content) with a price tag similar to Yamaha NMAX.

Figure 15. 2W national sales, 2013-2018F


Figure 16. 2W sales growth correlation vs coal and CPO price

Source: Trimegah Research

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

2013 2014 2015 2016 9M17

2W to CPO 2W to coal



Figure 17. Yamaha NMAX (premium scooter) sales accounts ~4% of total national sales

Source: AISI, website compilation, Trimegah research

2W sector has lower financing risk compared to 4W

We believe the 2W sector has further room to push growth next year given that 2W’s NPL is still at a safeguard level. Multi-

finance companies’ NPL (majority are 2W financing) booked NPL of 1.7% in 9M17, lower than 2015’s 2.2%. We believe this

is backed by 2W’s higher exposure of sales to higher credit quality customers (eg; NMAX buyers). On the other hand, auto

NPL from the banking sector hiked from 1.3% in 2016 to 1.4% in 9M17. Banking sector mainly serves financing for the 4W

sector. We believe the rise in the 4W NPL is partially caused by 1) Higher exposure to lower credit quality customers as low-

segment cars (eg; low-cost green car) contribution to national 4W sales is increasing, 2) poorer credit quality from online-

transport drivers as some of their take-home pay have been declining.

Figure 18. Multi-finance companies' NPL Figure 19. Banks' automotive financing NPL

Source: Bloomberg, Trimegah Research

*based on 8 public financing companies in Indonesia Source: OJK, Trimegah Research

Commercial vehicle sales to grow

We expect 2018 commercial vehicle sales volume to increase by +10% YoY after booking 2017 increase of +16% YoY. We

believe the strong sales recovery is highly driven by rising mining activities. The only stock beneficiary from this is ASII. ASII

controls c.30% of the commercial vehicle market share through several of its prominent brands such as Dyna, Isuzu, UD

trucks.

0.0%

1.0%

2.0%

3.0%

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6.0%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Yahama NMAX sales Yamaha NMAX to total 2W sales (RHS)

(units)

1.5%

1.8%

2.0%

2.3%

2.5%

2.8%

Multifinance NPL

0.7%

0.8%

0.9%

1.0%

1.1%

1.2%

1.3%

1.4%

1.5%

1.6%

NPL for auto in banks



Figure 20. Commercial vehicle national sales, 2013-2018F

Source: Gaikindo, Trimegah research

350,523332,205

280,682

200,783

232,747256,022

-30%

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0

50,000

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500,000

2013 2014 2015 2016 2017F 2018F

(,000 units)

Commercial vehicle sales Growth (RHS)



COMPANY FOCUS │ 13 November, 2017

Astra International Working Hard to Maintain Its Large Presence

Earnings growth driven by mining-related and 2W

We expect 2018 earnings to grow by +14.1% YoY to Rp22.0trn mainly driven by 1)

2W earnings segment’s (treated as JV investments) strong growth from higher ASP

& volume, 2) Heavy equipment/mining contractor segment (via UNTR).

2W is a relatively attractive story compared to 4W

We expect 2018 auto-related earnings to grow +16.1% YoY, of which 11.3% is

contributed by 2W and 4.8% by 4W business. We believe the positive effect from

rise in commodity activities will be unlocked next year. ASII is the main distributor

of “Honda” brand in 2W, and it plans to launch a higher-end model called Honda

PCX (CKD version) which should play well into current trend of higher-end 2W

models. We expect Honda PCX to be sold 80% higher at ~Rp27m/unit (direct

competitor to Yamaha NMAX) vs industry’s ASP of ~Rp15m/unit. In our view, ASII

would not launch new 4W models that would be a game changer next year. On the

financing front, we expect 2W financing to have better NPL ratio vs 4W as credit

quality of low-end incomers should improve whereas 4W has rising exposure to

low-end cars (LCGC) which has relatively low credit quality. Note that auto-related

contributes c65% of 2018 earnings.

Heavy equipment/mining is key growth driver to non-auto earnings

We expect 2018 heavy equipment/mining sector to grow +13.7% YoY driven by

Pama’s overburden volume, heavy equipment sales and new coking coal business

(expected to book earnings in 2018). The double digit growth is mainly triggered

by the high coal price level triggering higher mining activities in the industry.

Difficult to re-rate if 4W business unable to be its growth backbone

ASII’s 5-years trailing P/E (excluding UNTR’s portion) has re-rated since Jan’ 16,

hovering above 18x, higher vs Jul’-Dec’ 15 level which ranged from 13x to 17x.

This means market was pricing in positive prospects on the auto, financing and

infra-related segments. ASII managed to prove solid 9M17’s earnings (excluding

UNTR) increase by +14.9% YoY. Yet, we think there have been concerns on ASII’s

less contribution from its core business; 4W industry as the industry is facing high

inventory level and facing stiff 4W competition. We think this is the main barrier for

ASII to have a valuation re-rating.

Maintain our Neutral call

We slightly increase our SOP based TP to Rp8,600 (from Rp8,300) following our

rate slight 2018 earnings adjustment. ASII is trading at 15.0x 2018 P/E. Downside

risk are lower than expected demand due to further deterioration in purchasing

power, higher than expected 4W NPFs. Upside risks are stronger than expected

economic growth recovery, successful 4W model(s). Also worth noting that ASII is

one of the top 5 largest stocks in JCI by market cap, and there is a risk it may

further if there is plenty of foreign passive fund flow into JCI.

Company Data

Year end Dec 2015 2016 2017F 2018F 2019F

Revenue (IDRbn) 184,196 181,084 207,915 225,933 248,675

EBITDA (IDRbn) 28,107 21,423 26,609 29,743 32,169

Net Profit (IDRbn) 14,464 15,156 19,266 22,191 23,791

EPS (IDR) 357 374 476 548 588

EPS Growth (%) -24.6 4.8 27.1 15.2 7.2

EV/EBITDA 13.4 17.4 13.7 12.3 11.4

P/E (x) 23.0 21.9 17.2 15.0 14.0

P/BV (x) 3.3 3.0 2.7 2.4 2.2

Stock Data & Indices

Bloomberg Code ASII.IJ

JCI Member JAKMIND

MSCI Indonesia Yes

JII Yes

LQ45 Yes

Kompas 100 Yes

Performance (%)

YTD 1m 3m 12m

Absolute -0.9 -1.8 3.8 4.8

Relative to

JCI -14.8 -2.0 1.1 -8.9

Key Data

Issued Shares (mn) 40,484

Free Float (est) 49.8%

Mkt. Cap (IDRbn) 331,965

Mkt. Cap (USDmn) 24,422

ADTV 90 days (USDmn) 200.4

52 Wk-range 9350/7325

Neutral (Maintained) Target Price IDR8,600 Previous TP IDR8,300 Current Price IDR8,200

Willinoy Sitorus [email protected] 021 -2924 1234 Jeffrey Jap [email protected] 021 - 2924 9018



Cash Flow

Year end Dec 2015 2016 2017F 2018F 2019F

Net profit 14,464 15,156 19,266 22,191 23,791

Depr. / amort. 10,895 3,889 6,137 6,730 7,288

Chg in working cap 1,500 232 5,699 -3,883 -4,848

Others -569 130 -1,287 -3,003 -3,790

CF operations 26,290 19,407 29,814 22,035 22,440

Capex -8,104 -5,856 -14,650 -14,200 -11,700

Others 563 -4,942 -4,413 -2,793 -2,960

CF investing -7,541 -10,798 -19,063 -16,993 -14,660

Net change in debt 577 261 5,000 0 0

Equity raised 0 0 0 0 0

Dividends -8,739 -6,797 -7,426 -9,441 -10,874

Others -5,245 648 5,055 3,297 3,340

CF financing -13,407 -5,888 2,629 -6,144 -7,534

Net cash flow 5,342 2,721 13,380 -1,101 247

Others 1,032 -436 0 0 0

Income Statement

Year end Dec (IDR bn) 2015 2016 2017F 2018F 2019F

Revenue 184,196 181,084 207,915 225,933 248,675

Gross Profit 36,710 36,432 42,614 47,083 51,820

Op. Profit 17,212 17,534 20,472 23,013 24,881

EBITDA 28,107 21,423 26,609 29,743 32,169

Net int. inc./(exp) 145 -46 -340 -411 -166

Gain/(loss) Forex -291 -155 -1 -0 1

Assoc. earnings 4,467 3,349 7,258 8,565 9,153

Other inc./(exp.) -1,903 1,571 1,737 1,656 1,826

Pre-tax profit 19,630 22,253 29,125 32,823 35,695

Tax 4,017 3,951 5,508 6,115 6,692

Minority Int. 1,149 3,146 4,351 4,517 5,212

Net profit 14,464 15,156 19,266 22,191 23,791

Balance Sheet


Cash and equivalents 27,102 29,357 42,737 41,636 41,883

Other curr asset 78,059 81,046 82,913 89,260 97,381

Net fixed asset 41,702 43,237 46,206 49,691 52,694

Other non-current assets 98,572 108,215 119,460 129,240 137,400

Total Asset 245,435 261,855 291,316 309,827 329,358

ST debt 36,202 45,820 50,820 50,820 50,820

Other curr liab 40,040 43,259 50,825 53,288 56,562

LT debt 34,447 25,090 25,090 25,090 25,090

Other LT Liab 8,213 7,780 8,780 8,780 8,780

Total Liabilities 118,902 121,949 135,515 137,978 141,252

Minority interest 24,490 27,955 32,010 35,307 38,647

Shareholders’ Equity 102,043 111,951 123,791 136,542 149,459

Ratio Analysis

Year end Dec 2015 2016 2017F 2018F 2019F

Profitability

Gross Margin (%) 19.9 20.1 20.5 20.8 20.8

Opr Margin (%) 9.3 9.7 9.8 10.2 10.0

EBITDA Margin (%) 15.3 11.8 12.8 13.2 12.9

Net Margin (%) 7.9 8.4 9.3 9.8 9.6

ROAE (%) 14.6 14.2 16.3 17.0 16.6

ROAA (%) 6.0 6.0 7.0 7.4 7.4

Stability

Current ratio (x) 1.4 1.2 1.2 1.3 1.3

Net Debt to Equity (x) 0.4 0.4 0.3 0.3 0.2

Net Debt to EBITDA (x) 1.5 1.9 1.2 1.2 1.1

Interest Coverage (x) 12.6 10.0 9.2 10.4 11.9

Efficiency

Receivables (days) 39 37 36 37 36

Inventory (days) 44 46 42 43 43

A/P (days) 49 54 58 64 63

Major Shareholders

Permata Bank (ASII owns 44.56%)

booked a -IDR376bn earnings loss

in 1Q16 due to large IDR1.9trn

impairment on loans. However, our

2016 income portion from Permata

is positive figure of IDR133bn (-

20.0% YoY) as we assume the

provision expense to normalize in

subsequent quarters. Our sensitivity

analysis suggest that zero profits for

Permata Bank in 2016, would

provide additional 1% consolidated

earnings cut

Major Shareholders

Astra International (ASII) is the top 5 JCI largest company

by market cap. Through its subsidiaries, ASII operates in the automotive, heavy equipment, financial, plantation and infrastructure sector.

Company Background

Jardin Cycle and Carriage

50.1%

Public 49.9%

SWOT Analysis

Threat Commodity

price volatility,

online apps

Strength Strong brand

identity,

synergy of

companies,

strong market

intelligence

Weakness Less

flexibility to

modify

business

model

Opportunity Indonesia’s

strong long-

term

economic

growth

Major Shareholders



Earnings revision

We slight reduce our 2017 earnings by -3.7% and slightly upgrade 2018 earnings by +2.3% following the 9M17

results.

Figure 1. Earnings revision


A SII

( ID R bn) 2017F 2018F 2017F 2018F 2017F 2018F

Revenue 207,915 225,933 192,596 206,094 8.0% 9.6%

Gross profit 42,614 47,083 39,915 43,379 6.8% 8.5%

Gross margin 20.5% 20.8% 20.7% 21.0%

Operating profit 20,472 23,013 19,147 21,436 6.9% 7.4%

Op. profit margin 9.8% 10.2% 9.9% 10.4%

Pre-tax profit 29,125 32,823 29,057 30,264 0.2% 8.5%

Pre-tax margin 14.0% 14.5% 15.1% 14.7%

Net profit 19,266 22,191 20,000 21,685 -3.7% 2.3%

Net margin 9.3% 9.8% 10.4% 10.5%

A uto segment

( ID R bn) 2017F 2018F 2017F 2018F 2017F 2018F

Revenue 100,418 108,603 95,101 99,894 5.6% 8.7%

Gross profit 10,444 11,295 9,891 10,789 5.6% 4.7%

Gross margin 10.4% 10.4% 10.4% 10.8%

Operating profit 904 977 1,236 1,698 -26.9% -42.4%

Op. profit margin 0.9% 0.9% 1.3% 1.7%

Pre-tax profit 9,523 11,098 9,823 9,295 -3.1% 19.4%

Pre-tax margin 9.5% 10.2% 10.3% 9.3%

Net profit 8,692 10,096 8,968 8,400 -3.1% 20.2%

Net margin 8.7% 9.3% 9.4% 8.4%

F inancing segment

( ID R bn) 2017F 2018F 2017F 2018F 2017F 2018F

Revenue 19,120 20,458 19,120 20,076 0.0% 1.9%

Gross profit 10,898 11,661 10,898 11,443 0.0% 1.9%

Gross margin 57.0% 57.0% 57.0% 57.0%


Op. profit margin 20.3% 20.3% 20.3% 20.3%

Pre-tax profit 5,338 5,913 5,729 5,998 -6.8% -1.4%

Pre-tax margin 27.9% 28.9% 30.0% 29.9%

Net profit 3,731 4,213 4,087 4,287 -8.7% -1.7%

Net margin 19.5% 20.6% 21.4% 21.4%

H eavy equipment

( ID R bn) 2017F 2018F 2017F 2018F 2017F 2018F

Revenue 64,076 72,827 55,803 62,087 14.8% 17.3%

Gross profit 15,116 17,282 13,100 15,115 15.4% 14.3%

Gross margin 23.6% 23.7% 23.5% 24.3%


Op. profit margin 17.2% 17.3% 17.1% 17.9%

Pre-tax profit 11,098 12,616 10,150 11,551 9.3% 9.2%

Pre-tax margin 17.3% 17.3% 18.2% 18.6%

Net profit 5,065 5,758 4,632 6,645 9.3% -13.4%

Net margin 7.9% 7.9% 8.3% 10.7%

Others segment

( ID R bn) 2017F 2018F 2017F 2018F 2017F 2018F

Revenue 7,643 8,178 7,643 8,025 0.0% 1.9%

Gross profit 2,284 2,497 2,284 2,398 0.0% 4.1%

Gross margin 29.9% 30.5% 29.9% 29.9%


Op. profit margin 25.0% 25.7% 24.7% 24.7%

Pre-tax profit 472 619 803 843 -41.2% -26.6%

Pre-tax margin 6.2% 7.6% 10.5% 10.5%

Net profit 283 375 464 487 -39.0% -23.1%

Net margin 3.7% 4.6% 6.1% 6.1%

N EW OLD % C H A N GE







Is it well-deserving for re-rating?

Difficult to re-rate if 4W business unable to be its growth backbone

ASII’s 5-years trailing P/E (excluding UNTR’s portion) has re-rated, hovering above 18x level since Jan’ 16, higher vs

Jul’-Dec’ 15 level which ranged from 13x to 17x. This means market was pricing in positive prospects on the auto,

financing and infra-related segments. ASII managed to prove solid 9M17’s earnings (excluding UNTR) increase by

+14.9% YoY. Yet, we think there have been concerns on the recovery of ASII’s core business; 4W industry. Note that

the 4W net profit contributes only 22% of 3Q17 total net profit, which is the lowest since 1Q14.

The 4W industry is currently facing high inventory pile at dealer level and the prolonged stiff 4W competition has been

ongoing since back in 2014. 4W business is still perceived as ASII’s main back bone by investors in our view. Hence, it

would be hard to justify for a re-rating if earnings mainly driven by diversification to non-auto businesses in the short-

run. ASII has done many non-auto attempts in business such as venturing into Property business (eg; Anandamaya

Residence, Asya lake township) and infra (eg; Astratel Nusantara; targets to operate 500km of toll-road by 2020).

However, these projects still lacks long-term earnings clarity. Also, with the unexpected NPL rise in Bank Permata

(BNLI; 44.56% owned by ASII) dragging Rp2.6trn of ASII’s 4Q16 earnings, we sense investors are becoming more

cautious of any earnings downside surprises going forward.

Figure 2. ASII ex-UNTR 5-years trailing P/E

Source: Company, Bloomberg, Trimegah Research

Figure 3. Net profit breakdown (value), 2014-2018 Figure 4. Net profit breakdown (contribution), 2014-2018F

Source: Company, Trimegah research Source: Company, Trimegah research

12.0

14.0

16.0

18.0

20.0

22.0

24.0

26.0

28.0

30.0

12

/07

/12

02

/07

/13

04

/07

/13

06

/07

/13

08

/07

/13

10

/07

/13

12

/07

/13

02

/07

/14

04

/07

/14

06

/07

/14

08

/07

/14

10

/07

/14

12

/07

/14

02

/07

/15

04

/07

/15

06

/07

/15

08

/07

/15

10

/07

/15

12

/07

/15

02

/07

/16

04

/07

/16

06

/07

/16

08

/07

/16

10

/07

/16

12

/07

/16

02

/07

/17

04

/07

/17

06

/07

/17

08

/07

/17

10

/07

/17

Trailing PE band ASII exc UNTR avg 17.9x +1 STD 21.1x

+2 STD 24.2x -1 STD 14.7x -2 STD 11.6x

8,491

7,464

9,1668,692

10,096

4,750

3,555

789

3,731 4,0273,263

2,3423,032

5,0655,758

1,996

493

1,599 1,495 1,700691 634 570 283 332

0

2,000

4,000

6,000

8,000

10,000

12,000

2014 2015 2016 2017F 2018FAutomotive Financial sector Machinery

Agriculture Others & elmination

(Rp bn)

44% 52%60%

45% 46%

25%25% 5%

19% 18%

17%16%

20% 26% 26%

10% 3% 11% 8% 8%4% 4% 4% 1% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017F 2018F

Automotive Financial sector Machinery

Agriculture Others & elmination



Figure 5. 3Q17 auto-related net profit contribution to total net profit is the lowest since 3Q15*

Source: Company, Bloomberg, Trimegah Research * Auto-related segment includes 4W/2W distribution, auto components and auto financing

** 4Q15 abnormal contribution of auto-related is due to UNTR’s high impairment

** 4Q16 high auto-related contribution is due to BNLI’s high provision

Figure 6. 3Q17 4W distribution net profit contribution to total net profit is the lowest since 1Q14

Source: Company, Bloomberg, Trimegah Research

59%

126%

80%

65%

85%92%

60% 65%59%

0%

20%

40%

60%

80%

100%

120%

140%

-

600

1,200

1,800

2,400

3,000

3,600

4,200

4,800

5,400

6,000

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

Auto-related Auto-related NP to total NP (RHS)

(Rp bn)

22% 24% 23%

35%

23%27%

31%

50%

27%

34%31%

43%

25% 25%22%

0%

10%

20%

30%

40%

50%

60%

-

500

1,000

1,500

2,000

2,500

3,000

4W net profit 4W NP to total NP (RHS)

(Rp bn)



Commodity rise effect to be seen next year

Should start seeing 2W and commercial vehicle growth recovery next year

Many investors at the beginning of this year were speculating ASII would book attractive auto sales growth driven by

high commodity prices (especially coal) which have already been seen in 4Q16. We view that investors missed the fact

that banks/financial institutions were still non-reactive and reluctant to provide lending to miners in general. Also

some players that have gone bankrupt were also reluctant to back to the commodity market. This caused a sluggish

reaction in capex acceleration. However, we already start seeing some signs of a significant capex hike (3Q17

capex up +117% YoY) from coal miners and CPO miners (we gathered quarterly capex data from

AALI,LSIP, SGRO, ADRO, PTBA, ITMG and UNTR) in 3Q17.

Figure 7. Honda 2W growth vs coal price growth Figure 8. Honda 2W growth vs CPO price growth

Source: Company, AISI, Bloomberg, Trimegah research Source: Company, AISI, Bloomberg, Trimegah research

Figure 9. Isuzu + UD trucks (commercial vehicles-related) growth, YoY

Source: Company, Gaikindo, Bloomberg, Trimegah research

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

Honda 2W growth, YoY Coal price growth

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

Honda 2W growth, YoY CPO price growth

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

Isuzu + UD trucks (commercial-vehicle-related) growth, YoY

Coal price growth

CPO price growth



Figure 10. CPO and coal miners capex rising significantly in 3Q17*

Source: Company, Gaikindo, Bloomberg, Trimegah research *Capex of AALI,LSIP, SGRO, ADRO, PTBA, ITMG and UNTR combined

Why ASII’s 4W story is relatively less attractive next year vs 2W?

We view that Rush/Terios is a sweetener to ASII’s 4W models, but far-off from a game changer unlike Avanza and

Innova of which combined could contribute 40% of ASII’s 4W sales (please refer to our report about Toyota Rush

issued in 11 Nov’ 17). The old version of Toyota Rush/Daihatsu Terios has never brought strong contribution ASII

(only around 9-10% of ASII’s 4W sales volume).

Furthermore, we may see some further ASII’s price discounts in 4Q17 at dealer level. If history repeats itself (the

industry faced massive inventory pile at dealer level due to slow down in economy and inflation spike), an inventory

over pile at dealer level in 2H would eventually hurt ASII’s 4W operating margins the next quarter (refer to chart

below). On the bright side, it takes margins to recover quickly in subsequent quarters (2Q15 – 4Q15).

Figure 11. ASII’s op. margin fell back in 1Q15 due to…


-80%-60%-40%-20%0%20%40%60%80%100%120%140%

-

1,000

2,000

3,000

4,000

5,000

6,000

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

CPO and coal miners capex

CPO and coal miners capex growth, YoY (RHS)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

100

200

300

400

500

600

700

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

Auto operating profit (no 2W portion) Auto op. margin (RHS)

(Rp bn)



Figure 12. ... Competing price as the 4W industry suffered massive inventory over pile back in 2014


Figure 13. Toyota Rush and Daihatsu Terios sales contribution to ASII’s total sales


Valuation

SOP based TP of Rp8,600

We have a TP of Rp8,600 implying 15.9x 2018 P/E. Our TP is derived using SOP-based approach breaking the

segments’ based on different valuation approaches. For automotive segment, we use 2018 target P/E of 15x. For

financials, we use 2018 P/BV target of 2.9x. For heavy equipment/mining contracting segment, we use DCF approach

using 13.1% WACC and 4% LT growth.

49,372

95,573101,654

93,603 94,745

66,520

28,165 29,791

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

National whole minus retail sales ASII's 4W op. margin

(unit)



Figure 14. SOP valuation


Company Background

Figure 15. SOP valuation

Source: Company

Figure 16. 9M17 net profit breakdown

Net profit contribution 9M17 9M16 Auto Non-auto Auto Non-auto

4W 24%

31% 2W 19%

20%

Auto component 2%

2% Financial services 20% 1% 24% -6%

Heavy equipment & mining

24%

17% Agribusiness

8%

8%

Infrastructure, logistics, IT & property

2%

4%

Total 65% 35% 77% 23%

Source: Company

Valuation

Method

Assumptions Target PE18 (x) 15.0 ROE: 15.0% WACC: 13.1% PE18 (x): 12.0 PE18 (x): 12.0

K: 12.5% TG: 4.0%

Growth: 11.2%

Value (Rpbn) 151,433 82,102 90,997 21,000 4,497

Value per share (Rp) 3,741 2,028 2,248 519 111

ASII SOTP value (Rpbn) 350,029

Value per share (Rp) 8,600

Earnings multiple

2018F

Automotive Financial Agribusiness Other business

Gordon growthEarnings multiple DCF

Heavy equipment/

mining contracting

Earnings multiple




Mitra Pinasthika Mustika

Limited earnings growth next year

2W distribution not that much exposed to mining regions

We believe next year’s purchasing power for low-middle segment would recover

partially thanks to populist economy view. We expect this to have a positive impact to

MPMX’s 2W distribution business. Yet, we see that strong 2W sales will mostly be

driven from outside Java due to rise in commodity activities while MPMX distribution

scope is limited to East Java and NTT regions.

4W business unit still becomes a burden

Based on management, 4W contributes to ~IDR100bn loss in 2016 (~28% of 2016

NPATMI) due to low 4W sales volume (lack of new model from Nissan) which is unable

to cover its large fixed cost. The net earnings loss lingered in 9M17 despite

management’s attempt to close 5 of its 10 dealerships. We see a divestment of its 4W

business unit is a wise strategy as it would save MPMX ~IDR50bn/year loss, which is

an attractive proposition to take knowing that Nissan has already hired new

distribution partners Indonesia (besides IMAS).

New capacity from lubricant factory may fact short-term rise in overhead cost

Federal Oil (FKT), MPMX’s subsidiary, just launched its new lubricant factory with

100mn litres capacity/annum, more than double vs its previous capacity of 45mn

liters/annum. Due to increase capacity, we expect next year’s utilization to drop to

60% (from 65% in 2017) before gradually recovering in 2019.

Digital initiative as the new growth

MPMX’s management is looking at digital initiatives as a source of future growth. They

recently launched Bidbox, a platform where customers can buy a multi brand car (not

only Nissan) with minimum down payment and balloon payment at the end of lease

contract. Another on-going digital project will cater to logistic service. These digital

initiatives are not projected on our model yet since it is still on an early stage.

Maintain our Neutral call

We downgrade our call on MPMX to NEUTRAL but slightly raise our TP to IDR1,100

following our 2019 earnings adjustment. Our TP implies 12.4x/10.0x 18F/19F PE.

MPMX is trading at 9.8x 2018F PE. Key downside risks: 1.) Lower than expected

utilization rate for its oil lubricant factory, 2.) Lower than expected demand for 2W.

Key upside risks: 1.) Strong growth prospects from its digital initiatives, 2.)

Divestment of 4W business.

Company Data*


Revenue 16,639.7 17,722.5 17,649.7 18,673.8 19,893.1

Net Profit 284.9 360.7 442.6 445.5 533.6

EPS Growth (%) (41.5) 26.6 22.7 0.6 19.8

P/E (x) 15.3 12.1 9.9 9.8 8.2

P/BV (X) 0.8 0.8 0.7 0.7 0.6

EBITDA 1,221.0 1,037.6 1,384.6 1,396.6 1,568.4

EV/EBITDA 4.6 5.8 7.4 7.6 6.9

Div. yield (%) 0.7 2.5 3.1 3.3 3.3 *we have not de-consolidated MPM Finance


Bloomberg Code MPMX.IJ

JCI Member JAKTRAD

MSCI Indonesia No

JII No

LQ45 No

Kompas 100 No

Performance (%)

YTD 1m 3m 12m

Absolute 19.5 -0.5 14.0 16.7

Relative to JCI

5.6 -0.7 11.2 3.0

Key Data



Mkt. Cap (IDRbn) 4,374

Mkt. Cap (USDmn) 322


52 Wk-range 1140/760

Neutral (Downgrade) Target Price IDR1,050 Current Price IDR980

Jeffrey Jap [email protected] 021 - 2924 9018 Willinoy Sitorus [email protected] 021 -2924 1234



Cash Flow

Year end Dec 2015 2016 2017F 2018F 2019F

Net profit 284.9 360.7 442.6 445.5 533.6

Depr. / amort. 508.3 200.8 286.5 330.6 357.2

Chg in working cap 104.9 501.1 (75.8) (159.6) (190.4)

Others (2.6) (843.2) 13.8 14.8 15.8

CF operations 895.5 219.4 667.1 631.3 716.1

Capex (644.9) (370.6) (655.7) (559.6) (590.4)

Others 80.3 (190.3) 164.6 (241.4) (279.5)

CF investing (564.6) (560.9) (491.2) (801.0) (869.9)

Net change in debt 99.5 197.3 (1,130.2) 307.9 194.0

Others (368.6) (54.2) (97.2) (109.0) (96.3)

CF financing (269.1) 143.1 (1,227.4) 198.9 97.7

Net cash flow 61.9 (198.5) (1,051.5) 29.2 (56.0)

Cash at BoY 1,421.7 1,483.6 1,285.1 233.6 262.8

Cash at EoY 1,483.6 1,285.1 233.6 262.8 206.8

Free Cash Flow 250.7 (151.3) 11.4 71.7 125.7

*we have not deconsolidated MPM Finance yet

Income Statement*


Revenue 16,639.7 17,722.5 17,664.4 18,729.5 19,999.7 Gross Profit 2,298.5 2,631.0 2,688.9 2,926.7 3,189.8 Opr. Profit 712.7 836.8 1,098.8 1,071.1 1,224.5 EBITDA 1,221.0 1,037.6 1,385.1 1,401.1 1,580.6 Net Int Inc/(Exp) (215.6) (218.7) (463.7) (427.3) (442.3) Earnings From Subsidiary 4.3 5.3 4.3 4.7 - Other Income (Expense) 179.6 157.7 278.9 157.0 156.2 Pre-tax Profit 501.4 622.8 635.2 643.9 782.2 Income Tax Expense 193.7 212.6 158.8 161.0 195.6 Minority Interest 22.8 49.5 33.4 34.5 45.2 Net Profit 284.9 360.7 442.9 448.4 541.4 Dividend payout ratio (%) 6.3 40.6 40.0 35.0 35.0

Balance Sheet*


Cash and equivalents 1,483.6 1,285.1 233.6 262.8 206.8

Other curr asset 4,970.5 4,433.5 4,501.2 4,738.5 5,022.1

Net fixed asset 3,351.0 3,520.9 3,890.1 4,119.1 4,352.4

Other non-current as. 4,675.2 5,686.8 5,522.1 5,763.6 6,043.0

Total Asset 14,480.4 14,926.2 14,147.1 14,884.0 15,624.3

ST debt 2,266.5 2,681.8 2,158.7 2,266.7 2,334.7

Other curr liab 1,782.0 1,746.1 1,738.0 1,815.7 1,908.8

LT debt 4,825.1 4,607.2 4,000.0 4,200.0 4,326.0

Other LT Liab 266.5 243.7 257.5 272.3 288.1

Minority interest 749.1 770.5 817.6 863.5 923.2

Total Liabilities 9,140.2 9,278.8 8,154.3 8,554.7 8,857.6

Shareholders’ Equity 4,591.2 4,877.0 5,175.3 5,465.9 5,843.5

Ratio Analysis

Year end Dec 2015 2016 2017F 2018F 2019F

Profitability

Gross Margin (%) 13.8 14.8 15.2 15.6 15.9

Opr Margin (%) 4.3 4.7 6.2 5.7 6.1

EBITDA Margin (%) 7.3 5.9 7.8 7.5 7.9

Net Margin (%) 0.7 1.2 2.0 1.6 1.4

ROAE (%) 11.2 6.2 7.6 8.8 8.4

ROAA (%) 3.9 2.0 2.5 3.0 3.1

Stability

Current ratio (x) 1.6 1.3 1.2 1.2 1.2

Net Debt to Equity (x) 1.2 1.2 1.1 1.1 1.1

Net Debt to EBITDA (x) 4.6 5.8 4.3 4.4 4.1

Interest Coverage (x) 2.2 2.5 2.1 2.4 2.6

Efficiency

A/P (days) 27 23 23 23 23

Receivables (days) 123 123 119 119 119

Inventory (days) 19 17 18 18 18

Major Shareholders













earnings cut

Major Shareholders

Mitra Pinasthika Mustika is an

automotive-related company

catering to the 4W/2W

distribution segment, auto

components (lubricant oil), 4W

rental and financing related

business.

Company Background

PT Saratoga Investama Sedaya

47.6%

Morning Light Investment

15.3%

Claris Investments 6.8%

Public 30.3%

SWOT Analysis

Threat Execution risk

in synergizing

its various

businesses

Strength Diversified

portfolio

Weakness Business

units are not

well

synergized

Opportunity Tapping into

new growth

from digital

business,

increase in

utilization

rate for

Federal Oil

Major Shareholders



Earnings revision

We revised down our earnings estimate for 2018F due to lower 4W sales volume (-65.1%) and lower rental fleet (-15.2%). Management expects 4W sales to remain stagnant if there is no new and exciting model introduced to the market by Nissan next year. Management also tends to maintain car rental fleet size and focus more on increasing its utilization rate. Since early 2017, cost efficiencies have been applied across MPMX’s business units. Hence, we increase our 18F/19F operating profit by 11.2% and 15.5% respectively.

Figure 1. Earnings revision*

NEW OLD CHANGE

2018F 2019F 2018F 2019F 2018F 2019F

Revenue 18,674 19,893

19,373 20,453

-3.6% -2.7%

Gross profit 2,913 3,164

2,914 3,111

0.0% 1.7%

Gross margin 15.6% 15.9%

15.0% 15.2%

Operating profit 1,066 1,211

962 1,060

10.8% 14.3%

Op. profit margin 5.7% 6.1%

5.0% 5.2%

Pre-tax profit 640 771

718 817

-10.9% -5.7%

Pre-tax margin 3.4% 3.9%

3.7% 4.0%

Net profit 445 534

416 473

7.2% 12.7%

Net margin 2.4% 2.7%

2.1% 2.3%

Volume

2W distribution (units) 907,948 953,345

916,878 935,216

-1.0% 1.9%

4W distribution (units) 3,000 3,016

8,594 9,883

-65.1% -69.5%

Oil lubricant sales ('000 litre) 65,255 66,560

64,505 65,795

1.2% 1.2%

No. of fleet (units) 12,870 12,741

15,180 15,644

-15.2% -18.6%

ASP

2W distribution (IDRm/unit) 16.4 16.8

15.8 15.9

4.2% 5.3%

4W distribution (IDRm/unit) 181.7 187.1

187.0 194.5

-2.8% -3.8%

Oil lubricant (IDR '000/litre) 32.2 32.8

28.9 30.1

11.3% 9.2%


*we have not de-consolidated MPM Finance yet

Figure 2. Revenue contribution, 9M17 Figure 3. NPATMI contribution, 9M17

Source: Company, Trimegah Research Source: Company, Trimegah Research

*MPM Insurance only



Figure 4. MPMX’s 3-years average forward PE

Source: Company, Trimegah Research




Company Data

Year end Dec 2015 2016 2017F 2018F 2019F

Revenue (IDR bn) 1,393 1,570 1,756 1,881 2,061

Net Profit (IDR bn) 34 62 90 124 143

EPS Growth (%) (20.5) 81.9 44.2 38.7 15.5

P/E (x) 20.9 11.5 8.0 5.7 5.0

P/BV (X) 0.8 0.8 0.7 0.7 0.6

EBITDA 358 409 435 484 423

EV/EBITDA 6.9 6.1 6.0 5.1 5.7

Div Yield (%) 2.4 1.9 3.5 5.0 7.0

Adi Sarana Armada Aggressive Without Disruption

2018 earnings continue to grow by 38.7% YoY and ROAE to improve

This is driven by 1.) Strong market value of used cars, 2.) Increase in number of

fleet, 2.) Lower interest expense as ASSA is able to re-finance its debt at lower

rates, 3.) Lower fleet acquisition cost due to high bargaining power to purchase

bulk orders at discount. We expect 2018 ROAE to increase to 12.3% from 9.6%

in 2017F.

Higher bargaining power on the big rental players

With fiercer competition in the auto distribution market, we see large-scale rental

players have relatively higher bargaining power compared to back in the 2010-13

auto-boom. By having a large scale of fleet (21k units), enables ASSA to

purchase new cars used for rental at a lucrative discounts compared to market.

Note that ASSA has grown its fleet to 19.2k units in 2016, up +48.4% since

2013, while its near-competitors such as TRAC (ASII’s subsidiary) and MPM

Rental (MPMX’s subsidiary) have been booking relatively stagnant fleet growth.

Interest from debt declines due to lower floating interest rate

ASSA’s interest expense managed to decline to Rp132bn in 9M17 (from Rp140bn

in 9M16) thanks to the lower floating interest rate from its existing debt (dropped

from10.5% to 8.7%). This alone contributed to 66% of our 39% earnings growth

projection in 2018. Our sensitivity suggests 10% earnings increase for 1% lower

interest rate (assuming lending rate is unchanged and full-year effect).

Buy with DCF-based TP of Rp350

We maintain our BUY call on ASSA with DCF- based TP of IDR350. Our TP implies

9.6x 18F PE. ASSA trades at 5.7x/5.0x 18F/19F PE. Key downside risks are 1.)

Mismanage of utilization and capacity expansion, 2.) Low secondary 4W market

value.

Buy (Maintained) Target Price IDR350 Current Price IDR210

Willinoy Sitorus [email protected] 021 -2924 1234 Jeffrey Jap [email protected] 021 - 2924 9018


Bloomberg Code ASSA.IJ

JCI Member JAKINFR

MSCI Indonesia No

JII No

LQ45 No

Kompas 100 No

Key Data



Mkt. Cap (IDRbn) 713

Mkt. Cap (USDmn) 52


52 Wk-range 282/191

Performance (%)

YTD 1m 3m 12m

Absolute 7.7 -2.8 -11.0 6.1

Relative to

JCI -6.2 -3.0 -13.7 -7.6

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

-

50

100

150

200

250

300

Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17

(Rpbn)Avg. 5 Day MA Trading Value (RHS) Price (LHS)



Cash Flow


Net Profit 34 62 90 124 143 Depr / Amort 130 136 139 146 57 Chg in Working Cap (32) 1 23 (10) (13) Others (226) (21) 19 23 27 CF's from oprs (93) 177 271 283 213 Capex (345) (93) (337) (87) (105) Others 300 81 (7) (8) (8) CF's from investing (45) (12) (344) (95) (114) Net change in debt 329 44 78 (150) (50) Others (184) (196) (25) (36) (50) CF's from financing 145 (152) 53 (186) (100) Net cash flow 6 13 (20) 2 (0)

Cash at BoY 22 28 40 20 23 Cash at EoY 28 41 20 23 23 Free Cash flow (438) 84 (66) 196 108

Income Statement


Revenue 1,393 1,570 1,756 1,881 2,061 Gross Profit 414 456 505 553 601 Opr. Profit 228 273 297 338 366 EBITDA 358 409 435 484 423 Net Int Inc/(Exp) (171) (184) (174) (161) (156) Earnings From Subsidiary - - - - - Other Income (Expense) - - - - - Pre-tax Profit 57 89 122 178 210 Income Tax Expense (23) (27) (33) (54) (67) Minority Interest (0) (0) (0) (0) (0) Net Profit 34 62 90 124 143 Dividend payout ratio (%) 49.7 21.9 40.0 40.0 40.0

Balance Sheet


Cash and equivalents 28 40 20 23 23 Other curr asset 238 252 249 263 282 Net fixed asset 2,538 2,631 2,829 2,770 2,819 Other non-current assets 89 106 113 121 130 Total Asset 2,893 3,030 3,212 3,177 3,253 ST debt 28 2 10 10 10 Other cur. liab 597 595 615 619 625 LT debt 1,300 1,387 1,457 1,307 1,257 Other LT Liab 114 143 162 185 211 Minority interest 0 0 0 0 0 Total Liabilities 2,038 2,126 2,244 2,120 2,103 Shareholders’ Equity 854 904 968 1,057 1,150 Net debt / (cash) 1,757 1,788 1,886 1,734 1,684 Total cap employed 2,268 2,433 2,587 2,548 2,618 Net Working capital (359) (305) (356) (343) (330) Debt 1,784 1,828 1,906 1,756 1,706

Ratio Analysis

Year end Dec 2015 2016 2017F 2018F 2019F

Profitability Gross Margin (%) 29.8 29.0 28.8 29.4 29.2 Opr Margin (%) 16.4 17.4 16.9 18.0 17.8 EBITDA Margin (%) 25.7 26.1 24.8 25.8 20.5 Core Net Margin (%) 1.8 3.2 4.4 6.0 6.4 ROE (%) 4.0 7.1 9.6 12.3 13.0 ROA (%) 1.3 2.1 2.9 3.9 4.5 Stability Current ratio (x) 0.4 0.5 0.4 0.5 0.5 Net Debt to Equity (x) 2.1 2.0 1.9 1.6 1.5 Net Debt to EBITDA (x) 4.9 4.4 4.3 3.6 4.0 Interest Coverage (x) 1.3 1.5 1.7 2.1 2.3 Efficiency Account Payable (days) 18.8 13.7 17.3 17.3 17.3 Account Receivable (days) 39.1 42.0 39.6 39.6 39.6 Inventory Day (days) 8.4 8.4 9.2 8.6 7.9

Major Shareholders













earnings cut

Major Shareholders

PT Adi Sarana Armada Tbk (ASSA) is one of the largest car rental company with 19,200 rental units and 44 branch & service points. It entered the car auction business back in 2014.

Company Background

PT Adi Dinamika Investindo

24.9%

Drs. Prodjo Sunarjanto SP

9.5%

Others 25.6%

Public 40.0%

SWOT Analysis

Threat Increase in cost of funds, high discount for new car

Strength Strong customer base, lower car acquisition price, synergy within business units

Weakness Exposure to

change in

interest rates

Opportunity Increase in used car price, increase in potential customer base (corps

prefer to outsource)

Major Shareholders



Figure 1. Top 3 rental companies fleet, 2012-2017F


Figure 2. ASSA’s 3-year average forward PE




Research Team

Sebastian Tobing, CFA Head of Research and Institutional Equity

[email protected] +62-21 2924 9105

Gina Novrina Nasution, CSA CTA Head of Technical Research [email protected] +62-21 2924 9099

Angga Aditya Assaf Economist, Head of FIG [email protected] +62-21 2924 9103

Christy Halim Head of Consumer Research [email protected] +62-21 3043 6355

Paula Ruth Head of Telecom and Media Research [email protected] +62-21 2924 9136

Willinoy Sitorus Head of Commodities, Auto, and Small Caps Research


Wisnu Budhiargo Head of Property and Infrastructure Research


Yeni Simanjuntak Head of On-The-Ground Research [email protected] +62-21 2924 9104

Rovandi, CTA Associate, Junior Technical Analyst [email protected] +62-21 2924 9096

Billy Theodorus Research Associate [email protected] +62-21 2924 9106

Jeffrey Research Associate [email protected] +62-21 2924 9018

Monica Meidiana Research Associate [email protected] +62-21 2924 9060

Sandro Hanaehan Sirait Research Associate [email protected] +62-21 2924 6323

Novianty Corporate Access [email protected] +62-21 2924 9037

Della Agatha Research Associate [email protected] +62-21 2924 6325

Darien Sanusi Research Associate [email protected] +62-21 2924 6320

Fakhrul Fulvian Head of Economics and Fixed Income Research


Institutional Sales Team

Daniel Dwi Seputro Head of Equity Trading [email protected] +62-21 2924 9075

Dewi Yusnita Equity Institutional Sales [email protected] +62-21 2924 9082

Glen Riyanto Equity Institutional Sales [email protected] +62-21 2924 9076

Meitawati Equity Institutional Sales [email protected] +62-21 2924 9081

Raditya Andyono Equity Institutional Sales [email protected] +62-21 2924 9146

Retail Sales Team Henry Sidarta, CFTe Head of Retail Equity Sales [email protected] +62-21 3043 9075

Jakarta Area

Musji Hartanto Artha Graha, Jakarta [email protected] +62-21 2924 9021

Windra Djulnaily Pluit, Jakarta [email protected] +62-21 6660 1456

Untung Wijaya Kelapa Gading, Jakarta [email protected] +62-21 4503 345

Ignatius Candra Perwira BSD, Tangerang [email protected] +62-21 5386 700

Sumatera

Juliana Effendy Medan, Sumatera Utara [email protected] +62-61 4520336

Tantie Rivi Watie Pekanbaru, Riau [email protected] +62-761-859710

East Indonesia

Pandu Wibisono Surabaya, Jawa Timur [email protected] +62-341-589888

Ivan Jaka Perdana Malang, Jawa Timur [email protected] +62-31-5623720

Carlo Ernest Frits Coutrier Makasar, Sulawesi Selatan [email protected] +62-411-850222

Central Java, Area

Agus Bambang Suseno Solo, Jawa Tengah [email protected] +62-271-733328

Mariana Kusuma Wati Semarang, Jawa Tengah [email protected] +62-24-8452333

West Java

Asep Saepudin Bandung, Jawa Barat [email protected] +62-22-4267929

Ariffianto Cirebon, Jawa Barat [email protected] +62-231-8291155


mailto:[email protected]





Disclaimer

This report has been prepared by PT Trimegah Sekuritas Indonesia Tbk on behalf of itself and its affiliated

companies and is provided for information purposes only. Under no circumstances is it to be used or

considered as an offer to sell, or a solicitation of any offer to buy. This report has been produced

independently and the forecasts, opinions and expectations contained herein are entirely those of PT

Trimegah Sekuritas Indonesia Tbk.

While all reasonable care has been taken to ensure that information contained herein is not untrue or

misleading at the time of publication, PT Trimegah Sekuritas Indonesia Tbk makes no representation as to

its accuracy or completeness and it should not be relied upon as such. This report is provided solely for

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This report is not intended for media publication. The media is not allowed to quote this report in any

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This report was prepared, approved, published and distributed by PT Trimegah Sekuritas Indonesia Tbk

located outside of the United States (a “non-US Group Company”). Neither the report nor any analyst who

prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory

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member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory

organization.

INVESTMENT RATING RULE:

Buy : Share price is expected to exceed more than 10% over the next 12 months

Neutral : Share price is expected to trade within the range of 0%-10% over the next 12 months

Sell : Share price is expected to trade below 0% over the next 12 months

Not Rated : The company is not within Trimegah research coverage



Analysts Certification

The research analyst(s) of PT Trimegah Sekuritas Indonesia Tbk. primarily responsible for the content of

this research report, in whole or in part, certifies that with respect to the companies or relevant securities

that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her

personal views on the company or relevant securities mentioned herein; (2) no part of his or her

remuneration was, is, or will be, directly or indirectly, connected with his or her specific recommendations

or views expressed in the research report; and (3) the report does not contain any material non-public

information.

The disclosure column in the following table lists the important disclosures applicable to each company

that has been rated and/or recommended in this report:

Company Ticker Disclosure (as applicable)

ASII

MPMX

ASSA

Trimegah Disclosure Data

Trimegah represents that:

1. Within the past year, it has managed or co-managed a public offering for this company, for which

it received fees.

2. It had an investment banking relationship with this company in the last 12 months.

3. It received compensation for investment banking services from this company in the last 12

months.

4. It expects to receive or intends to seek compensation for investment banking services from the

subject company/ies in the next 3 months.

5. It beneficially owns 1% or more of any class of common equity securities of the subject company.

6. It makes a market in securities in respect of this company.

7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of

his/her household) has a financial interest position in securities issued by this company. The

financial interest is in the common stock of the subject company, unless otherwise noted.

8. The analyst (or a member of his/her household) is an officer, director, employee or advisory board

member of this company or has received compensation from the company.


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