Multistrada Arah Sarana, Takeoff on the Offtake

COMPANY PROFILE
Multistrada was established in 1988 under the name PT Oroban Perkasa
The company was transferred to BPPN in 1998 as a result of the Asian Crisis and took over by new management in 2005 under PVP XVIII. Since 2007, the company started to produce higher portion of high performance tires which is resulted in better performance. The company is currently producing radial passenger tire under Corsa, Strada,and Achillles brands and motorcycle tire under Corsa brand. It is also taking off take order from various multinationals tire producers and independent distributors.

KEY HIGHLIGHTS
Strong offtake and long term contracts demand
Offtake demand comes from two major sources; the first one is created from the imbalances of numbers of big players plants closed to their new plants opened in the emerging countries. The second source of demand is coming from independent distributors who already have strong marketing networks. These distributors are eager to have their own brand to fully utilize their strong networks advantage.

MASA captured the opportunity and positioned itself as one of the leading offtake producer in Indonesia. As MASA successfully capture the market of independent distributors, it creates unique offtake model which is more similar to a producer-retailers selling models rather than to big player-offtaker normal models.

The advantage of this business models are: I) it offer win-win solution to the independent distributors and also open the marketing channels for Multistrada as a relatively young company, II) The competition under this segment is relatively low as big players are uneager to serve other party brands and the smaller one is limited by the capital investment needed ,III) The large numbers of customers shifted the pricing power toward balance compared to the normal offtake models, and IV) the business models opens room for monthly price adjustment.

Rapid capacity expansion Responding the huge demand, MASA have been increasing its production capacity. The early December daily capacity is at 17,500 tires and 8,000 tires for passenger car (pcr) and motorcycle tire, respectively. The company plans to increase the capacity to 22,500 tires and 16,000 tires for passenger car and motorcycle tires in the first phase expansion which is expected to be completed in the first half of 2011. The second phase will bring passenger car tire production capacity to 28,500 tires in the end of 2011.

COMPANY REPORT CARD
ROE. We expect ROE to grow to 15.0% in 2011 from 11.4% in 2010.
Management. The board of directors is led by Mr. Peter Tanuri who revitalized Multistrada business under the current owner after 2005 took over from BPPN.
Dividend. We assumed there are no dividend payment as the company is still in high capacity expansion period

RECOMMENDATION
Our target price at IDR440 is based on DCF calculation with WACC of 11.6% and terminal growth of 3%. The target price implies 10.2x-7.3x 2011-2012F earnings.