Multistrada Arah Sarana A Challenging Quarter

A challenging quarter
1H12 core income come below our estimate at IDR89bn (-2% y-o-y or -2% q-o-q); reached 37% of our FY12 forecast, while top line come barely in line with our forecast at IDR1.6trn (+17% y-o-y or +3% q-o-q), reached 45% of our FY12 forecast. Basically 1H12 top line performance was in tandem with other Indonesian tyre makers and spare parts producers that also have high export portion which typically has a slower sales to America and Europe. In MASA case, export to America was flat and export to Europe decline by 32% in y-o-y bases.

Gross margin temporarily dip
Temporary hike in rubber price and butadiene price in the 1Q12 slightly trimmed 2Q12 gross margin to 18.7%, a 0.8% q-o-q decline. As rubber price and butadiene price eased down in 2Q12, we expect gross margin to rebound in the 3Q12. Overall 1H12 gross margin at 19.1% is still within our FY12 estimate of 19.2%.

Slightly higher opex
Opex, especially selling and distribution expense at 5.7% of 1H12 revenue, come slightly higher than our estimate at 5.0% of revenue. Hence. we adjust our selling and distribution expense assumption to 5.8% of revenue for FY12-FY14 which lower our FY12-FY13-FY14 core income forecast by (9%)-(9%)-(9%).

Non operating item
Weakening IDR in the 1H12 bring a forex loss of IDR92bn, higher than our FY12 estimate at IDR69bn which mainly come from USD debt. The forex loss heavily affected net income which comes below our estimate at IDR6.3bn (-95% y-o-y), only compromising only 3% of our forecast. Nevertheless we keep our focus on the core income rather than net income.

Volume slightly below target
1H12 passenger car tyre (pcr) and motorcycle tyre sales volume comes slightly below our estimate at 3.5m unit (+10.4% y-o-y or +0.4% q-o-q) and 1.7m unit () respectively, compromising 44% and 47% of our FY12 sales volume forecast. Growth in passenger car tyre sales volumes was partially contributed by 36% strong growth in domestic sales. We expect sales volume to be decline in 3Q, considering Lebaran long holiday, and to increase again in 4Q.

Valuation
We found our revised fair value at IDR500 which implies 20.9x-16.8x of FY12-FY13 core income. The counter is currently trading at 19.0x-15.3x of FY12-FY13 coreincome. We maintain our NEUTRAL recommendation as we think the stock is already fully valued.