I found this stock, Astra International (ASII), when I was doing the routine screening
job to find good and undervalue stocks. The name of ASII is certainly familiar
to any of you, but I myself had forgotten the last time I hold this stock.
However, based on several considerations, ASII at this point might be ideal as
an investment choice, especially for those of you who like blue chip stocks
with high liquidity.
ASII is the largest conglomerate in Indonesia, with a total of 178
subsidiaries and 191,000 employees as of September 2013. As a conglomerate,
ASII engaged in diverse business sectors, namely automotive, financial
services, heavy equipments and coal mining, oil palm plantations, information
technology, and infrastructure and logistics. The latter may be unfamiliar, but
ASII is also has a subsidiary in the field of toll road operators, car rental
services, water treatment, fuel terminals, and ports. Until the third quarter
of 2013, ASII earned Rp5.6 trillion of revenue from the business of infrastructure
and logistics, or greater than Rp1.5 trillion of revenue from the information
technology (through Astra Graphia/ASGR).
Here are the details of revenue/income and net profit/net income of ASII
until third quarter of 2013 (January – September 2013), based on the type of
business, compared to the same period in 2012:
Revenue
|
Q3 2013
|
Q3 2012
|
Growth (%)
|
Automotive
|
80,648
|
76,063
|
6.0
|
Financial Services
|
10,416
|
9,717
|
7.2
|
Heavy Equipments
& Coal Mining
|
37,305
|
44,137
|
(15.5)
|
Oil Palm
Plantations
|
8,324
|
8,575
|
(2.9)
|
Infrastructure
& Logistics
|
5,648
|
5,498
|
2.7
|
Information
Technology
|
1,460
|
1,301
|
12.2
|
Elimination
|
(1,961)
|
(2,153)
|
|
Total
|
141,840
|
143,138
|
(0.9)
|
Net Profit
|
Q3 2013
|
Q3 2012
|
Growth (%)
|
Automotive
|
7,029
|
7,384
|
(4.8)
|
Financial Services
|
3,433
|
2,945
|
16.6
|
Heavy Equipments
& Coal Mining
|
3,445
|
4,499
|
(23.4)
|
Oil Palm
Plantations
|
965
|
1,748
|
(44.8)
|
Infrastructure
& Logistics
|
383
|
515
|
(25.6)
|
Information
Technology
|
131
|
107
|
22.4
|
Elimination
|
-
|
-
|
|
Total
|
15,386
|
17,198
|
(10.5)
|
Okay, note that the performance of the company was still declining,
especially the business of heavy equipments, coal mining, and oil palm
plantations. But the business of financial services, including banking and
insurance, the growth was still quite good. Interestingly, when compared to the
other business units, financial services was also the unit that has the highest
profit margin, which is 33.0%, while the overall profit margin of ASII is only
10.8%. It could be said that the business of financial services is that causes
the performance of ASII, although down, but still quite good with ROE at the
level of 20.8%.
While the other business units, all experienced a tough year during 2013.
For the automotive business, the demand for automotive products, both
four-wheeled and two were still high due to rising income of Indonesian people,
but ASII have to face the increasingly fierce competition, plus the increase in
labor costs. For the business of heavy equipment, coal mining, and oil palm
plantations, the issue was still the same: The decline in the price of coal and
crude palm oil (CPO), which led to a decrease in demand for heavy equipment and
reduced profit margins. However, the volume of CPO sales increased
significantly, and this means that if the CPO price later rebounded, then ASII
should not having difficulties to re-increase its profits from the oil palm
plantations business unit.
To address the issue of competition in the automotive business unit, since
September 2013 ASII launched Toyota Agya and Daihatsu Ayla, the low cost cars
for the medium consumers, which arguably successful in the market. This step is
actually copied by one of the main contenders of ASII, namely Indomobil (IMAS),
which launched Suzuki Karimun Wagon-R, but other than that there is no serious
competitor. For the business units of heavy equipment and coal mining, the
company had no corporate action but only wait for the price of coal to be
recovered. And for oil palm plantations, ASII through Astra Agro Lestari (AALI)
formed a partnership with KL Kepong Plantation Holdings, one of oil palm plantation
companies in Malaysia, to establish KLK Pte Ltd in Singapore, to expand the
market of palm oil products.
Interestingly, for this year of 2014, ASII is planning to get into the real
estate business. The initial step is to acquire a 2.4 hectares of land in Jalan
Sudirman, Jakarta, which on the land will be built The Astra Tower, a 47 floors office building, and three apartment
towers. Currently the land has been acquired, but the construction are still
not begun. In this case ASII cooperate with its related party, Hong Kong Land
(HKL), where both ASII and HKL are equally subsidiaries of the Jardine Matheson,
a Hong Kong-British investment group.
Okay, then what makes ASII, as I mentioned above, is attractive for
investment? Well, it's because some of the following points:
- ASII is the largest company on the Indonesia Stock
Exchange in terms of net assets, and the second largest in terms of market
capitalization (behind HM Sampoerna/HMSP). But because the stock of HMSP is
lack of liquidity, then ASII is still the largest company in the country.
There are many public and institutional investors, both foreign and local,
who holds this ASII, and by that if you’re one of ASII’ shareholders, you’re
not alone.
- ASII is a well-established company, having
big names, as well as an excellent reputation. Who do not know the name of
the Astra Group? There are several major conglomerate group in Indonesia,
but it is onlya Astra that has a long history, a track record of good financial
and operational performance, and significantly helped the economic growth
in Indonesia.
- The management of ASII is very fair to public investors, where they keep to run the business as it is, and regularly pay dividend in large numbers (about more than a half of its annual net income). The company also never been in trouble with debt or taxes or such, so that the outside of the external factors such as the decline in commodity prices, the management is never really facing serious problems in running the company's operations.
Based on my research, in the early 2000s, ASII was known as an automotive
company only, and the business units outside the automotive do not contribute
but a little. But in the last five years, there was a booming in commodities, in
this case the increasing price of coal and CPO, so the company’s income from
heavy equipment, coal mining, and oil palm plantations, all rose significantly.
However over time, the commodity prices turned down, or in my language, 'back
to normal'. In the past two years, ASII’ revenues from the commodity business
were down, but we could say that it is actually just go back to its normal
levels, because the year 2010 and 2011 was the golden years for coal and CPO.
Well, of course we do not know will the coal and CPO be booming again. But
clearly, in contrast to other coal companies that having issues in paying their
debts because the hard situation of the business, ASII did not have such issue,
so if later the price recovered, then ASII, or in the case its subsidiaries,
United Tractors (UNTR) and AALI, will be the first companies to enjoy the
significant growth in its revenue and net income.
And what's interesting of this stock is of course its valuation. When this
article was written, ASII was at Rp6,800 per share, and it reflects the PER 15.3
and PBV 2.8 times. Actually, this valuation can not be said to be undervalued,
but in its heyday, ASII was at the premium level which its PBV reaches 3 - 4
times, so its curent price is arguably fair. If you can buy the stock at a slightly
lower price, let say 6,000 or below, then that's great. As we have discussed
above, the high quality of the management of ASII causing the stock has
virtually no significant corporate risks, so the only risk is if the Jakarta
Composite Index (JCI) dropped, and the stock is dragged down. But as usual, if JCI
is actually down and ASII was also down to below 6,000, then it is always an
opportunity to buy more at discount prices.
There are many ASII shareholders who already holding this stock since 2009,
2007, 2002, or even longer. And these shareholders are unlikely to sell out
their shares only because ASII performance was slowing down, because usually
they already have a ‘positive chemistry’ with the company, and also the people
in it, so they feel that they have the company as a whole. And that chemistry,
frankly, is very difficult to obtain if you are investing in a company of other
conglomerate groups in Indonesia, such as Bakrie, Lippo, Sinarmas, or MNC Group.
PT Astra International, Tbk
Rating of Performance in Q3 2013: A
Rating of Stock at 6,800: A
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