Tunas Ridean a Solid Way to Capitalize Astra’s LCGC

Earlier in our IIMS report, we already stated that we like the Agya and Ayla twins upon seeing it in the International Motor Show. We positively view Astra’s bold move to introduce the cars even though government hasn’t finalizing the LCGC incentive. The exterior is appealing and the interior is spacey with a very affordable indicative price of IDR80mn-IDR110mn/units.

We think that this new car will become a substantial booster for Astra sales and the good part is, given the cars features, it will not significantly cannibalize Astra’s other model (except for some similar class like Sirion) especially the Avanza-Xenia as most of Indonesian are still MPV minded and the characteristic of 1000cc city car that have more specific market.

Considering the features, Agya and Ayla are more suitable for personal use (non fleet market) urban transportation in the cities like Jakarta that have good road condition and flat contour. The same reasoning however will also become the constraints that limit the city car twins below its older brother Avanza-Xenia twins. Astra management itself expects the twins to take second market car share.

We keep our BUY recommendations on Astra International (ASII IJ), yet the upside is quite limited by the fact that Astra’s other business segment notably its last year growth engine, United Tractors (UNTR IJ) is currently being hit by distressing woe in coal market. Fortunately, we found another way to capitalize the Astra LCGC in another classic counter Tunas Ridean (TURI IJ) which is 44% owned by Jardine Cycle and Carriage (another 44% by Tunas Andalan).

TURI is the second biggest dealer for Astra’s car brand with Toyota and Daihatsu as the main driver of revenue. Majority of its 4W dealerships are located in Jakarta and Banten, the place which we expect will produce significant portion for the LCGC sales. The company also sells Honda motorcycle as the main dealer in Lampung. TURI currently manages 43 branches for 4W dealership and 60 branches for 2W dealership.

The company plans to add 1-2 4W dealership branches annually to expand its business. For the 2W branches, the company is currently consolidating the operation after added 14 branches in the last year. We expect TURI revenue to probe Astra’s brand growth.

Besides the dealership, TURI holds another engine growth, Mandiri Tunas Finance (MTF) which is 51% owned by Bank Mandiri and 49% owned by TURI. Backed by Bank Mandiri ownership since 2009, MTF expand aggressively, yet in the last year it still built up provision which made bottom line quite flat despite strong lending growth. However as provision is moderating this year, the growth is start kicking in into the bottom line.
TURI third business arm, the rental side is also showing a good performance in 1H12.

TURI valuation is also attractive at 12.5x trailing PE compared to Astra at 16.6x PE or Indomobil at 19.4x PE even though its profitability is near its peers and the balance sheet is better.