Indomobil Sukses, Making Headway Amid Competition

IMAS, which is aiming for FY12 4W vehicles sales to crank up by more than 50% y-o-y, is banking on its newly launched MPV Nissan Evalia carving out a 20%-25% share of the MPV market. Although a lucrative segment, competition in MPVs is tough as its competitors had earlier this year launched new models before the new downpayment policy took effect.

In addition to rising 4W sales, IMAS’ earnings will be spurred by auto spare parts sales, boosted by strong Nissan sales in the past, as well as heavy equipment sales. IMAS is trading at a premium to its peers at 16.3x-13.1x FY12-13f PEs. Our target price of IDR7,500 implies 17.7x-14.3x FY12-13f PEs.

Lucrative but hotly-contested market
IMAS launched its new MPV, Nissan Evalia, early this month. The MPV segment is the largest sector in the domestic 4W market, where sales account for around half of nationwide vehicle sales. The company is targeting to sell about 5k units of Evalia monthly and garnering a 20%-25% share of the domestic MPV market.

IMAS expects its FY12 4W sales to reach 100k units, higher than our projection of 80.6k units. As Evalia was launched just two weeks before new downpayment ruling took effect, it will not be easy to spur the vehicle’s sales in 2H. Furthermore, the model faces tough competition from Ertiga, Avanza and Xenia – all of which were launched earlier this year.

Auto spare parts sales to step up
We see spare parts sales – now accounting for 11% of consolidated sales – to go up in line with the rising number of aging Nissan cars. A car running for 2 years usually begins on a cycle where some spare parts would need replacing. Notably, IMAS’ vehicles sales growth accelerated in 2010, chalking up a CAGR of 74.8% in the last two years.

The gross profit margin from spare parts is much higher than that from cars at 26.2% versus 6.8% respectively. Hence, the higher spare parts sales will accordingly enhance the company’s blended profit margin.

Construction equipment a new income generator
At the end of last year, IMAS obtained a license from Volvo Construction Equipment (VCE) to distribute the latter’s products in Sumatra, Java, Nusa Tenggara, and Papua. The company is targeting for VCEs to capture a 3.3%-4.2% share of the domestic heavy equipment market, with sales of 800-1,000 units this year. Our conservative forecast is for sales of 800 units in 2012.

Attractive, but fairly valued
Although we are conservative in our 4W vehicles and heavy equipment sales assumptions, our calculations show that earnings are still estimated to grow at a CAGR of 27.4% from 2011-2014. However, IMAS is trading at 16.3x-13.1x FY12-13f PE, which is at a premium to its peer ASII’s PE of 14.9x-13.2x FY12-13f. Based on our DCF valuation and assuming WACC of 11.7% and long-term growth of 9.0%, the counter’s fair value is IDR7,500, which implies PEs of 17.7x-14.3x for FY12-13f.