ASII: its complexity masks its expensive valuation

The narrative of the automotive industry lately looks bleak: the first is the increasingly hot competition in the automotive business, the second is the emergence of a new era in the world of automotive, named electric vehicles (EV) and finally, improved transport infrastructure, including the birth of new startups, makes people think twice about owning a car.

But the reasons above are not things that make me bearish toward ASII.

First, competition is not new for ASII and I myself believe that automotive business is an infrastructure business. There is no point in having a good product but not equipped with a scattered after-sales service, availability of spare parts and a good auto-resale price.

While the story about EV I think will still long enter the Indonesian market because to build the EV community, it takes a considerable amount of funds and time.

The possibility is actually the third factor that does have an impact, namely the increase in utility vehicles so that people do not need the car as much as it used to be.

But, no, that’s not what makes me bearish for ASII.

My concern is more to the issue of valuation.

As we know, ASII has many kinds of business fields, namely:

• Automotive
• Financial service
• H/E & mining (UNTR, ACST)
• Agribusiness (AALI)
• Infrastructure & logistic
• Information Technology (ASGR)
• Property

Most of the ASII business fields have been listed on the stock market, while the rest are not.

Below is a breakdown of some ASII businesses:

	Mcap (IDR bio)	ASII’ ownership	E17*	1H17 BV	Subsidiaries’ profit that belongs to ASII	Subsidiarie’s market cap that belongs to ASII
ASII IJ	318,808		19,647
UNTR IJ	113,023	59.50%	7,024	44,764	4,179	67,249
AALI IJ	28,389	79.68%	2,078	17,899	1,656	22,620
BNLI IJ	20,191	44.56%	1,421	21,428	633	8,997
AUTO IJ	13,447	80.00%	881	10,564	705	10,758
ASGR IJ	2,032	76.87%	300**	1,173	231	1,562

*Bloomberg estimate.

**my rough estimation.

From the breakdown above, the market hopes that ASII’ non-listed business is expected to book a net profit of IDR 12,243 billion in 2017. This is a tough job for ASII’ non-listed companies that are still dominated by automotive business and financial services.

If broken down in market cap, the market cap of ASII’ listed business is IDR 111,186 billion, which implies that ASII’s non-listed business market cap is IDR 207,622 billion.

If we divide IDR 207,622 billion with IDR 12,243 billion, we get non-listed ASII’ business valuation at 16.96x E17.

Once again I emphasize that until now ASII’ non-listed business is still dominated by automotive business and financial services.

At 16.96x E17, I feel that ASII’s current non-listed business valuation is very expensive. The table below is a comparison between ASII’ non-listed business with similar companies around the world:

	Mcap (USD bio)	P/E17
ASII’non listed	15.61	16.96
7203 JT	161.47	10.60
7201 JT	37.72	7.69
FCAU US	24.38	6.31
BMW GY	61.51	7.21
VOW3 GY	72.30	5.27
AVERAGE		9.00

The average valuation of automotive companies worldwide is 9x E17. In fact, the average valuation is only 7.42x E17 if we remove ASII from the calculation.

The valuation gap between 16.96x E17 and 7.42x E17 is too wide to ignore. Especially considering the Indonesian automotive industry has not experienced growth in the last 3 years.

UNDERWEIGHT ASII. Its complexity masks its expensive valuation.
Risk: ASII is a proxy of liquidity. In addition to fundamental factors, liquidity in the market can affect ASII price movements in the short term. 

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.