Astra Sees Tough Year as Indonesia Growth Dims: Southeast Asia

For PT Astra International (ASII), Indonesia’s largest company by market value, 2013 may be a long year.

The company expects competition in its main automotive business to intensify, labor costs to rise and prices of its coal and palm oil to fall, President Director Prijono Sugiarto said in an interview yesterday.

“Business may slow down in 2013,” Sugiarto said in his office in Jakarta. “There’s more competition on the four- wheeler side and for Astra itself, as I said early on, the commodity prices are really pressuring the businesses of Astra, especially on the crude palm oil and coal side.”

Sugiarto’s concerns illustrate the dimming prospects for Indonesian companies, which are also bracing for a pickup in inflation that may undermine consumer spending in Southeast Asia’s largest economy. Astra’s profit is headed for its slowest growth in seven years, according to the average analyst estimate compiled by Bloomberg.

Jakarta-based Astra expects domestic auto sales to expand 5 percent or less from last year, Sugiarto 52, said. The company reported a 7 percent slide in first-quarter net income last month. While the introduction of low-cost green cars may support sales, Astra’s commodity based units must cope with lower palm oil and coal prices, said.

In January, BNP Paribas SA was forecasting auto sales in Indonesia would rise by 18 percent this year, second only to Russia’s growth among major car markets.

Economic Growth

The economy expanded 6.11 percent in the fourth quarter, the slowest pace in more than two years. Indonesia’s central bank last month lowered its economic growth forecast for 2013.

Astra’s profit will probably rise 6.5 percent to 20.7 trillion rupiah ($2.1 billion) this year, the slowest growth since 2006, according to the mean estimate of 23 analysts in a Bloomberg survey.

Shares of Astra, which sells Toyota Motor Corp. automobiles and owns oil palm plantations, coal mines and finance companies, have fallen 3.3 percent this year compared with a 17 percent gain in the Jakarta Composite index. While consumer price gains eased in April after surging to a 22-month high in March, inflationary pressures are building. The rupiah has weakened against all major Asian currencies except the yen, and President Susilo Bambang Yudhoyono said April 30 the government must raise the price of subsidized fuel. An across-the-board increase of 1,000 rupiah ($0.10) a liter may add about 1.6 percentage points to inflation, Bank Indonesia Deputy Governor Perry Warjiyo said April 26.

Consumer Spending

“If the situation remains the same and inflation cannot be managed, it will probably affect consumer spending,” Sugiarto said. Still, “to reduce the subsidy, even though it may affect the car market, we believe that with the present strength of the middle class and the affluent consumers of Indonesia, we believe it should be temporary as long as we do it gradually.”

The rupiah may trade at about 9,700 to 9,800 against the dollar this year, which is within a comfortable range, Sugiarto said. Astra’s hedging policy covers six months of imports and so far there’s no need to change the strategy, he said.

Share Price

Astra reported first-quarter net income of 4.3 trillion rupiah ($442.3 million), a decline of 7 percent from a year ago. Its share price has fallen 5.8 percent since the earning announcement April 24, as analysts from PT Credit Suisse Securities and PT Trimegah Securities lowered their target price for the company by at least 4.4 percent, according to data compiled by Bloomberg.

Astra owns 59.5 percent of PT United Tractors (UNTR), the nation’s biggest heavy equipment seller, whose businesses include mining contracting and coal mining. Astra also owns 79.7 percent of the country’s largest publicly listed palm oil company, PT Astra Agro Lestari. (AALI) United Tractors reported a 27 percent drop in first-quarter net income while Astra Agro’s profit slid 5.7 percent from a year earlier.

Coal at the Australian port of Newcastle, Asia’s benchmark price, dropped by $2.50 a ton in the seven days ended April 19, the fifth decline in six weeks and the biggest in more than a month, data from IHS McCloskey show. Prices averaged $94.29 last year after slipping to a three-year low of $78.05 on Oct. 19. Palm oil futures in Kuala Lumpur fell 3 percent this year, after plunging 27 percent last year.

Domestic automobile sales in March declined to 95,936 units from 103,268 units in February, Astra said April 12, citing data from the nation’s automotive industries association.

‘Bright Future’

Introduction of low cost green cars may provide an “upswing” to auto sales because of their fuel efficiency and affordable prices, which range from $8,000 to $12,000, Sugiarto said. Astra may sell about 7,000 to 10,000 low cost green cars each month and it has a backlog order of 30,000 units, he said.

Sales of these cars are pending the issuance of government regulation on low cost green cars, which Sugiarto said may be issued within a few weeks.

“I never have any doubt that this country will have a bright future” Sugiarto said. “For Astra group being one of the biggest players in this country, we believe we will also benefit from the economic growth in this country.”

To contact the reporter on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net; Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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