ASSA BUY upgrade TP to 700 (fr 335)
Monetizing Its Giant Presence
On the verge to become the largest car auction and car rental company
ASSA’s car auction business, Adi Sarana Lelang (ASL – BidWin), started back in 2014 as its attempt to set a platform for secondary car market transactions. ASSA’s car auction is lucrative as it:
1) requires small capital,
2) takes advantage of its large land bank (20 ha of total car pool area) and
3) helps in selling a substantial number of its existing car units every year (car rentals usually sold >4 years). ASSA charges fee on both parties which are the buyer and seller; total fee obtained is ~3% of the car’s transaction value. ASL to book +106% CAGR revenue from 2014 to 2018 sourced from its ~9 auction areas located in big cities. This year we expect ASSA to be the largest auction company beating Astra’s Ibid (~40k units sold per year) via organic and inorganic growth. In addition to that, we expect ASSA to book new earnings stream coming from its courier business (synergies with SF; 2nd largest courier company in China) as to ride along the strong logistics industry growth. These initiatives are not reactive strategies in our view rather these strategies has been well thought out as it monetize managements’ competencies and existing assets.
Strong synergies across its car rental, logistic and auction business units
With never-ending competition in the auto market, we expect large-scale rental players such as ASSA to have:
1) Relatively high bargaining power in purchasing new cars at higher discount vs single buyers and
2) obtain lower cost of fund (~8.5%-9%) among rental companies in general. Furthermore, ASSA’s ability to sell its used-car assets (~2k-5k units per year) in an efficient manner is increasing given its strong car auction business growth. Founded by a well-respected businessman, Mr. TP Rachmat (one of the prominent figure in Astra International’s milestone) and run by competent ex-Astra professionals in the management board, we have little doubt on ASSA’s operational and financial capabilities. ASSA’s total fleet only accounts 0.14% of total registered cars in Indonesia, a very small proportion as it is only segmented to corporate customers. We see ASSA’s rental fleets used for leasing will catch up to ASII’s Trac (largest car leasing) in the long-run. Back in 2014, ASSA only had ~15k units vs Trac’s ~29k units. In 2017, ASSA had 20k units vs Trac’s 24k units.
Upgrade TP; a justified re-rating
We upgrade our DCF-based TP to Rp700 (from Rp335) as we take into account
1) Car auction expansion,
2) Higher car leasing growth assumptions,
3) Strong logistic business growth, 4) Re-rate on higher share price liquidity (a long-known culprit to depressed share price). Our new TP implies 15.4x 2019 P/E. ASSA is trading at 10.0x 2019 P/E and 6.6x 2019 EV/EBITDA, a 51%/66% discount to global car rental peers. Its 2019 P/E valuation is at a 69% discount to average valuation of its first 1 year after IPO (~17x PE; share price were liquid). ASSA used to trade below book value, large mispricing due to poor liquidity. Key risks: 1) Economic slowdown, 2) Severe interest rate hikes.
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