Accelerating to become one of the top players. Established in 2003 with only 800 fleets, ASSA has grown to become 2nd largest transportation and logistics player in Indonesia with around 23,500 fleets fully in operation in 2018. Supported by 33 operational networks across the nation, ASSA secured long term contracts with more than 1,000 corporate clients involving big names such as Adira Finance, BCA, HM Sampoerna and others. Corporate clients contribute major rental business with 60% of the total rented fleets are leased to top 20 corporate customers. Furthermore, ASSA has outstanding contract of IDR2.2tn until FY20.
A glimmer of recovery. With coal price entered a declining phase in 2014 to 2016, the demand of ASSA’s used car in commercial segment (4x4) has taken an impact, translating to deteriorating in earnings during that period. ASSA has since then reshuffled its used car portfolio, allocating more passenger vehicles with lower to no correlation to coal or any other commodities prices, higher operating margin and higher resale value. Bottom line improved significantly in FY17 (+65.4% YoY) and 9M18 (+45.4% YoY) with earnings in 9M18 already exceeded FY17 bottom line (IDR 106bn/IDR103bn). The management targeted earnings to grow at a rate of 10-15% in FY19 with capex fully allocated to add 6,000 new fleets and sell 4,000 fleets.
Growing other source of revenue. In 2014, ASSA founded its own automotive auction business which has since accelerated from only selling 676 units in FY14 to 13,865 units in 10M18 due to the strategic leveraging from its other businesses. ASSA also signed an agreement in 2018 acquiring 51% stake of PT JBA Indonesia for IDR150bn with net profit of IDR25bn in FY18. The acquisition of JBA has set ASSA to become the largest automotive auction player in Indonesia since JBA alone is the 2nd largest with 76,000 units sold in FY18. Moreover, the management has decided that there will be no dividend for FY18 earnings to support ASSA further strategic expansion.
Valuations. ASSA’s earnings are projected to reach IDR139bn/IDR160bn for FY18/FY19 on consensus estimates. Based on 10% earnings growth in FY19 and consolidation from 51% stake in JBA, we estimate ASSA’s earnings will reach IDR167bn in FY19, implying 14.2x vs 14.9x 19F P/E on our vs consensus estimates. We believe that there is still a limited upside for ASSA share but due to the recent rally of the share, we recommend entering at a slightly better price.
