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.