The Super Yen Is Dimming Astra's Star

The folks at P.T. Astra International should be crowing. The Indonesian company that assembles and exports Japanese cars and motorcycles has just had a record year. Astra's managers have pursued a successful strategy to cut costs. And responding to lower interest rates, Indonesian consumers last year bought $3.2 billion worth of vehicles. As a result, Astra, which has a lock on more than half the market, posted a 50% increase in sales and nearly doubled its net profits, to $125 million.

But that was before the latest round of endaka, or high yen. For a company that has about 55% of its cost of goods valued in yen, the currency's 17% rise this year against the Indonesian rupiah is a mighty blow. In past years, Astra has managed to pass on much of the cost of the rising yen to its customers and one of its partners, Toyota Motor Corp., which provides technology and parts for many of its vehicles.

Such pass-alongs are trickier now. Toyota has its own problems with the strong yen. Astra's other Japanese partners--Honda, Isuzu, and Daihatsu--have shown little interest in helping the company with its yen burden. Moreover, Indonesian interest rates are rising, and demand for cars is dropping. Astra's woes illustrate the problems other Southeast Asian companies face as they confront the crisis caused by the high yen.

Rini Soewandi, finance director of Astra, concedes that "the yen rates have had a little bit of impact on us." Although Astra's growth rate will suffer, company officials insist they have the situation under control. Long before the current crisis, Astra had honed its foreign-exchange survival skills to a fine point through forward-yen contracts with Toyota. In its current contract, Astra has fixed the yen rate at 102.3 per dollar through July. That should keep the cost of Japanese components constant through the first half of this year.

Yet analysts in Jakarta are less optimistic. Interest rates for auto loans have jumped 3 points, to 24%, since the start of the year. That rise, coupled with the rupiah's fall against the yen, prompted Goldman Sachs (Asia) in April to predict a 35% drop in aftertax profit for Astra. Baradita Katoppo, an analyst at H.G. Asia Indonesia, recommends a hold or sell on the Jakarta-listed company. After suffering a 20% drop in March, Astra's stock has stabilized but not recovered its losses.

Astra's reality check may arrive soon. The company is negotiating its next forward-yen contract with Toyota through October. Management dismisses warnings from brokers that with the yen now trading at about 83 to the dollar, Astra has little chance of getting a rate as high as 90. Astra officials note hopefully that Toyota owns 8% of the company and thus has no interest in watching it suffer. "They don't want to pass on all of the appreciation to us," says Tintin Widjaja, an investor-relations officer at Astra.

Meanwhile, Astra is ploughing ahead. In contrast with analysts, the company is targeting 15% growth in net profits this year, largely by increasing its local content. Astra's best-seller, a Toyota-designed minivan, has 51% local content, including the engine block and body. Increasing local production was one of the main goals after 1991, when a consortium dominated by tycoon Prajogo Pangestu took over. Since then, Astra has improved efficiency. Analysts say its factories run at nearly 100% utilization.

LIMITED REACH. Beyond the yen, the Japanese connection limits the company's expansion overseas. Astra commands 56% of the Indonesian market, but that market is small: Only 318,000 minivans, pickup trucks, and passenger cars sold last year. Because of restrictions from its Japanese partners, Astra's export markets are negligible. Outside Indonesia, it can sell minivans only to Brunei and Papua New Guinea; Toyota 1,500cc engine blocks only to Japan; minibuses just to Malaysia and Mauritius; and motorcycles solely to China and Greece.

To ensure its survival, Astra is reducing its reliance on auto sales. Currently, they make up 80% of total revenues. Motorcycles offer more potential for growth, since most of the Indonesian countryside lacks paved roads. In addition, Astra's investments in palm oil, tea, rubber, and cocoa plantations will account for about 10% of the group's net profits this year, up from a tiny amount in 1994, says Soewandi. Astra also wants to expand into telecommunications. "They're realizing they'd better move into something else," says Rizal Prasetijo, an auto-industry analyst at Jardine Fleming Nusantara. For Astra's executives, the high-flying days of 1994 may soon become a distant memory.

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