Jardine Cycle & Carriage: Motorcar sales

Motorcar unit sales decline. Even though Apr domestic unit car sales in Indonesia grew 1.4% MoM, we note that on a YoY basis, sales declined from 51,642 units to 34,611 units (-33%). even as the central bank lowered its benchmark interest rates by 25 bps to 7.5% in Apr. Astra’s market share was slightly lower in Apr at 55%, compared with 59% in Mar. The pace of decline may have stabilised, but unit sales are not expected to pick up significantly to make up for the earlier decline.

Room to cut interest rates further. There is an expectation that Indonesia’s central bank may cut its interest rates further on the back of lower inflation. The key interest rate now stands at 7.25% in May. However, we do not think it will lead to surge in demand for automotives because consumers are still holding back their spending, given the global economic slowdown. On top of that, commercial banks are not lowering their lending rates much, despite the aggressive cuts in Jan-Apr 09 CPO production lower. For the 4M09, Astra’s CPO production was 304,893 tons, 6.5% lower compared with the same period in 2008. This was attributed to lower fruit yield. Yields are likely to remain low in 2Q09, but could improve in 2H09 as trees recover from drought-induced stress.

Average CPO price assumption raised to Rp5,683/kg (RM1,900/tonne) (previously Rp4,935/kg or RM1,650/tonne), in view of the run-up in CPO prices YTD. As a result, our earnings estimate for FY09 has been revised upwards to US$343.7m (US$333.2m previously). Raise target price to S$11.50, from S$10.28. Our target price for JC&C is based on a SOTP valuation, using blended FY09/10 earnings. Maintain SELL.

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