An open letter for ASII' BoD

Dear ASII IJ Board of Directors,

On this occasion let me convey a proposal.

As we know, the good capital market conditions, has made the price of shares in Indonesia in general rise significantly. In addition, the popularity of index funds makes big caps such as ASII IJ increasingly popular and strong, so ASII IJ is currently trading at 15.4x E18, 2.72x BV17, or equivalent to a USD 24.8 billion market cap.

In my opinion, you should take advantage of this moment by issuing new shares in large quantities, which you can use to acquire good assets at low prices. Your shopping list is as follows:

	Mcap (USD bio)	P/E18	PBV17
7203 JT	161.00	10.84	1.03
7201 JT	37.72	7.18	0.86
FCAU US	16.75	5.68	1.02
BMW GY	61.51	7.81	1.07
VOW3 GY	72.30	6.07	0.78

Thanks to electric vehicle noises, currently traditional-car manufacturer’s stocks are trading far below ASII valuations.

Although acquiring 7203 JT seems excessive because of its huge market cap, but the acquisition plan against other seems reasonable, in my view. 

My favorite is FCAU US which only has USD 16.75 bio market cap. Acquired 51% of its shares only need USD 8.54 bio.

At the end of 9M17, you only have total debt of USD 5.56 bio, while your cash is USD 2.19 bio and your equity is USD 11.05 bio. There is still plenty of funding space you can explore, either through additional debt and or new stock issuance to fund the acquisition, but I personally recommend funding through massive new shares issuance. The reasons are:

1. ASII stock valuation is high, very unfortunate if you do not take advantage of this moment by issuing new expensive shares.
2. By issuing new shares in large quantities, current shareholders will be cornered and forced to participate if they do not want their ownership diluted.
3. On the other hand, a large increase in new stocks will significantly increase ASII’ market cap and this will only cause index funds to be more eager to acquire your stock.

In the short term, the market may be upset with you, but be calm, because eventually the market will forget it. They can not ignore your presence when your market cap is getting bigger. Let alone if the market starts to realize that the expensive stock that you issue is used to buy a relatively cheap world-class assets.

Through this transaction, I believe you will create added value for shareholders through:

1. New brand and technologies acquisitions.
2. Your business is becoming more diversified, yet it is still related with the existing business.
3. Your market cap will increase significantly.

That’s more or less the suggestion I can give. You are welcome. Hope you can consider.

Disclaimer: This article is not a recommendation to conduct transactions on the intended securities. Any consequences arising from this writing are beyond the responsibility of the author.