Multistrada Arah Sarana, Higher Margin, Lower Volume in 4Q

MASA’s FY10 bottom line came in at IDR176bn (up 139% q-o-q or +1% y-o-y), which perfectly matched our forecast of IDR177bn. The company chalked up better numbers although volume was lower, thanks to its margins beating our 4Q estimates. We are maintaining our buy recommendation and target price at IDR440 while closely watching the progress of the company’s 1Q11 volume.

Lower volume but higher margin in Q4
The topline stood at IDR2,007bn (-6% q-o-q or +19% y-o-y), 6% below our estimate as 4Q sales totaled 1.3m passenger car tyres (vs our estimate of 1.54m units), a decline of 10% q-o-q . The lower volume was the result of a price increase, which also bolstered MASA’s gross profit margin to 25.6% in Q4 from 19.0% in Q3. This gave rise to a FY10 gross profit margin of 21.7%, higher than our estimate of 20,7%. We expect the pullback to be temporary as it was caused by a temporary spell of lower orders during the price negotiating process, which mainly involved customers which are not on long-term contracts.

However, we are closely watching the progress of the company’s volumes for 1Q11. Its operational expenses were also lower than expected at IDR178.8bn (vs our estimated IDR189.1bn) due to lower discounts and fewer bonus programs during the period of tight margins experienced by the overall tyre industry.

Progress of expansion
MASA’s installed capacity at end-February was around 20k passenger car tyres/day, still in line with the targeted 22.5k tyre/day at the end of the first half this year, while its installed capacity for motorcycle tyres reached 14k/day, which is close to the first phase target of 16k/day early in this year’s second quarter.

Going into rubber business
At the company’s annual general meeting in February, shareholders approved MASA’s proposal to venture into the rubber plantation business in order to secure supply and reduce its material cost. It is currently in the process of conducting due diligence on a plantation of about 30k-40kha. The company also intends to build one crumb rubber processing plant. We have not included the rubber segment into our calculation as the details are currently scarce.

Maintain buy
We maintain our buy recommendation and target price at IDR440, which implies a 10.1x-7.2x-2011-2012 PE ratio. The stock is currently trading at a 6.1x-4.4x-2011-2012 PE ratio.