Astra Challenged as Indonesia Slows, Coal Drops: Southeast Asia

PT Astra International (ASII) President Director Prijono Sugiarto is preparing for another challenging year as the economy cools and competition picks up for Indonesia’s biggest automotive retailer.

Astra will have to raise car and motorcycle prices this year to counter a weaker rupiah that contributed to a 5 percent drop in first-quarter earnings at the automotive division, Sugiarto, 53, said in an interview yesterday. Margins will continue to remain under pressure due to costs, though to a lesser extent than in the first quarter, he said.

A global economic slowdown has also pared demand at the company’s coal-related and palm oil businesses, which accounted for 34 percent of its net income in the first quarter. Growth in Southeast Asia’s largest economy eased to 5.2 percent in the first quarter, the slowest expansion since 2009, and will average 5.3 in 2014, according to the median of 32 economists’ estimates in a Bloomberg News survey.

“This year will be filled with even more challenges; economic data have shown that Indonesia is not immune,” Sugiarto said at the company’s office in Jakarta. “The export market is not supportive, commodity prices remain low. But private consumption in the first three months of this year seems to remain positive.”

Photographer: Dadang Tri/Bloomberg

Workers install rubber seals onto window panes on the production line at the PT Astra Daihatsu Motor assembly plant in Jakarta, Indonesia. Close

Workers install rubber seals onto window panes on the production line at the PT Astra... Read More

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Photographer: Dadang Tri/Bloomberg

Workers install rubber seals onto window panes on the production line at the PT Astra Daihatsu Motor assembly plant in Jakarta, Indonesia.

Coal price at Australia’s port of Newcastle, a benchmark for Asian contracts fell to $72.95 in the week ended May 30 from $84.60 as of the end of last year. Palm oil futures in Kuala Lumpur weakened to 2,422 Malaysian ringgit ($749) per ton from 2,660 ringgit at the end of 2013. Sugiarto forecasts the price of palm oil will range between $800-$900 this year.

Earnings

Astra’s net income will climb 8.3 percent to 21 trillion rupiah ($1.7 billion) this year, the average of 22 analysts’ estimates compiled by Bloomberg shows. The company posted its first annual profit drop since 2006 last year. Revenue in 2014 is projected to expand 9.1 percent to 211.6 trillion rupiah.

Shares of Astra fell 1.1 percent to 7,100 rupiah as of 11:19 a.m. in Jakarta, poised for the lowest close since May 30. The stock has gained 4.8 percent this year, compared with a 15 percent jump in the Jakarta Composite Index. Singapore-based Jardine Cycle & Carriage owns 50.1 percent of Astra.

Astra, which distributes Toyota Motor Corp. (7203) cars and Honda Motor Co. motorcycles, will increase vehicle prices this year in an effort to maintain margins, Sugiarto said. “The adjustment for this year would be mild, not as aggressive as last year,” said German-educated Sugiarto, who previously worked for Daimler AG in Indonesia.

Photographer: Dimas Ardian/Bloomberg

Prijono Sugiarto, president director of PT Astra International. Close

Prijono Sugiarto, president director of PT Astra International.

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Photographer: Dimas Ardian/Bloomberg

Prijono Sugiarto, president director of PT Astra International.

Competition

Competition in Indonesia’s automotive industry intensified after rival manufacturers including Honda, Suzuki Motor Corp. and Nissan Motor Co. responded to Astra’s decision in 2003 to introduce a smaller and cheaper van for the local market, branded as Toyota Avanza or Daihatsu Xenia.

The segment now accounts for about a third of total new car sales in the fourth-most-populous nation and Astra had about 65 percent share last year. Sugiarto said the sustainable market share in the segment for Astra would be between 55 percent and 60 percent.

“His remarks show the challenges in the automotive industry where competition between producers has intensified,” John Rachmat, head of research at PT Mandiri Sekuritas in Jakarta, said today. “Things are tough for the industry.”

Market Share

Astra’s market share is likely to see short-term pressure given the weak demand and increasing competition, Erindra Krisnawan and Laura Taslim, analysts at PT CIMB Securities Indonesia, wrote in a May 19 research report. The analysts cited the recent introduction of rival products in the low-cost-green-car segment.

Industry-wide domestic sales growth for cars and motorcycles this year may slow to 5 percent at best, Sugiarto said. Sales of cars and motorcycles climbed by about 10 percent each in 2013 to 1.2 million and 7.7 million units respectively, according to data released by Astra.

Indonesia’s rupiah, which declined 21 percent against the dollar in 2013, has strengthened 2.4 percent this year, making it the third-best performer among emerging market currencies. Sugiarto expects the rupiah to stay within 11,000 to 12,000 per dollar this year.

“Astra as a group is long on dollar.” he said.

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

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net; Young-Sam Cho at ycho2@bloomberg.net Suresh Seshadri, Dick Schumacher

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