Astra's profit may drop for first time

Astra's profit may drop for first time

Bloomberg/Jakarta

PT Astra International, Indonesia's biggest car distributor,
said profit may fall in 2005 for the first time in five years
because of slowing sales growth and the absence of one-time
gains. The stock fell as much as 2.4 percent.

Net income will "probably drop," Astra President Michael
Ruslim said in an Aug. 2 interview. Profit rose 22 percent to Rp
5.4 trillion (US$554 million) in 2004.

Rising oil prices have increased the cost of petrol, tires and
car paint, while a 4.8 percent drop in the rupiah has forced
Astra to raise prices of Toyota Motor Corp. and Bayerische
Motoren Werke AG vehicles. Earnings from Astra's palm oil unit
are also falling from last year, when group earnings were boosted
by Rp 575 billion gain from asset sales.

"I would be cautious on Astra and the stock market in the
short-term," Kie Kie Boenawan, who helps manage $1.2 billion in
Indonesian assets at Schroders Investment Management in Jakarta,
said, citing rising oil prices and interest rates. "Consumer
demand is also slowing, so that is bad for the whole economy."

An industry forecast for car sales to rise 14 percent to
550,000 units this year may be revised, said Prijono Sugiarto, an
Astra director and vice-chairman of Gaikindo, Indonesia's
association of automobile manufacturers. Selling 530,000 units
"will be a struggle," he said.

Astra's earnings per share are forecast to rise 4 percent to
Rp 1,389.41 a share this year from 1,335 a share last year,
according to the median estimate of 14 analysts surveyed by
Thomson Financial. The stock traded Rp 250 lower at Rp 12,100 at
10:23 a.m. on the Jakarta stock exchange, compared to a 0.5
percent fall in the benchmark index.

Astra, 50.1 percent owned by Singapore's Jardine Cycle &
Carriage Ltd., has posted profit gains since a loss of Rp 238.7
billion in 2000. The company this year became debt-free for the
first time in its 48-year history, after restructuring in the
wake of the 1997-1998 Asian financial crisis, which left
thousands of Indonesian companies unable to pay debt.

"It was fast-paced growth in the past few years but it will
eventually flatten out," Ruslim said. "The price of steel, the
raw material, has also increased; we have not passed through all
the increase in raw material costs, so we will see lower
margins."

PT Pertamina, Indonesia's state-owned oil company, last week
raised the price of diesel sold to mining, oil and export
companies for the third time in six months. Mining and cement
makers yesterday started paying Rp 5,480 a liter for diesel, an
increase of as much as 16 percent from last month, according to
figures on Pertamina's Web site. The price of leaded premium
gasoline rose by 14 percent.

While net income may fall, Astra's car sales may still be
ahead of last year. The company expects to account for 46 percent
of Indonesian car sales, up from 45 percent last year and 41.5
percent in 2003, Ruslim said.

Operating income, which rose 43 percent last year, will be
"flat" in 2005, he said.

The company is, meanwhile, awaiting details of a "luxury" car
tax proposed by the government. The levy "may hurt sales of cars
that are sold at more than Rp 200 million each," Sugiarto said,
forcing the company to raise the price of its Kijang Innova.

Astra posted net income of Rp 1.52 trillion in the three
months ended June 30, a rise of 11 percent on year.

Profit growth slowed from a 22 percent rise in the first
quarter as the company raised prices to counter the effect of a
rise in the cost of car imports. The company is in talks with
automakers on how to mitigate price pressures.

"Fuel prices will certainly increase the price of the cars,"
Ruslim said. "Eventually we will have to increase prices -- the
key thing is after sales (service) becomes very important."

Profit at Astra's 79.7 percent-owned PT Astra Agro Lestari
fell 19 percent in the first half of this year as palm oil prices
declined. The price of the commodity, used to make chocolate and
soap, has fallen 8.7 percent in the past 12 months, according to
Bloomberg data.

Astra shares have more than doubled in that time, compared
with a 54 percent gain in the benchmark Jakarta Composite Index.
Astra, which posted one-time gains last year from the sale of a
stake in a coal mine, is again branching into new businesses. Its
PT Astratel Nusantara unit and Citigroup Inc. paid about $26
million for 54 percent of toll road operator PT Marga Mandala
Sakti, the company said Aug 1.

The company is in talks with contractors to invest in new toll
roads, where the operator has already purchased land, Ruslim
said. "If there are no more toll roads, it's a bit difficult for
us to push more and more cars," Ruslim said.

Astra, which has stakes in PT Astra Graphia, a computer
services company, and PT Bank Permata, plans to expand operations
at PT United Tractors, a heavy equipment maker.

United Tractors should be able to benefit as Indonesia, which
is planning $150 billion of infrastructure investment over the
next five years, gets the projects under way, he said.

"We will strengthen that part of our business," Ruslim said.