Multistrada Arah Sarana A tough quarter

Unique business model
We like MASA unique offtake business model that produces branded tyre for multinational distributors which give MASA opportunity to utilize these distributor’s strong networks while enjoying a substantial demand. The competition in this segment is relatively benign as the big players are not eager to serve third party brands while the smaller ones are limited by the capital investment needed.

Historically, this type of business relationship, combined with MASA’s discretionary raw material purchase policy, lead to more stable gross margins compared to other industry players.

Capacity expansion
MASA completed the second phase of its expansion at end-2011, which boosted the company’s passenger car tyre and motorcycle tyre capacity by 72% and 100% higher from early 2010. MASA is planning the next phase of expansion, which will raise the capacity for passenger cars by 23%. However the initial timing may be delayed to the end of the year as demand may be soften considering slow global economic recovery.

Penetrating new markets
MASA currently sells through 83 distributors and takes in 14 offtake brands. The company in the process of adding one new offtake brand, with the possibility of taking another one within this year. Geographically, MASA aims to penetrate several new markets, including Russia and several smaller countries such as Kazakhstan within this year, In the domestic market, MASA will also strengthen its image by supplying to Daihatsu in the original equipment market.

Tough 1Q12
1Q12 revenue and gross profit come at IDR794bn and IDR594bn, barely in line with our estimate, compromising 21% and 22%, while gross margin posted a satisfactory level of 19.5% slightly above our FY12f at 19.0%. Slightly higher than estimate opex brought core income to IDR45bn, compromising only 16% of our core income FY12f. Net income, however, was depressed by forex loss of IDR28bn, hence only reaching 6% of our FY12f.

Further weakening IDR put downside risk through non operational item. However, we put more concern in potentially softening demand which may affect the operational performance. In term of sales, volume come barely in line with pcr and mc tyre posted 1.8m unit and 800k unit respectively, compromising 22% of of our FY12f volumes.

Valuation
Our DCF based target price is at IDR540, reflecting 17.5x FY12 core earnings. The counter is currently trading at 15.9x FY12 core earnings.