UPDATE 1-Indonesia's Astra eyes revival in cheap cars to boost sales

Tue Jul 30, 2013 12:09pm BST

Quotes

   

* Astra International H1 net profit falls 9.3 pct

* "Green" car law could become effective in August

* Astra says revamped factory ready to produce low cost cars (Adds quotes, details)

By Andjarsari Paramaditha

JAKARTA, July 30 (Reuters) - Indonesia's largest automotive distributor PT Astra International is betting on production of cheap, low emission cars to boost earnings this year after reporting a decline in net profit for the second straight quarter.

Astra International, Indonesia's biggest listed company by market cap, distributes cars for Toyota, Daihatsu and Honda, and is controlled by Singapore's Jardine Cycle & Carriage Ltd.

The Indonesia conglomerate with interests from banking to autos said on Tuesday its first half 2013 net profit fell 9.3 percent due to declining margins as competition heats up among automakers in Southeast Asia's biggest economy.

Indonesian auto sales, buoyed by an expanding middle class, hit a record 1.1 million in 2012, though the figure is expected to be lower this year because of a fuel price hike and higher down payment requirements.

Astra International and its Japanese partners are banking on the enactment of a long-delayed law to promote small cars known as the Low Cost Green Car (LCGC) programme.

The government signed the programme into law in June, but companies are awaiting final supporting regulations expected around August before starting production.

Late last year, Astra converted its main factory in Cikarang, West Java, to assemble the "green" cars and it is currently taking orders for them. Initial production capacity is estimated at 10,000 units per month.

"We could see a brighter outlook in Astra's second half since LCGC cars will be launched soon," said Jemmy Paul, head of equity at PT Sucorinvest Asset Management in Jakarta.

"The margin will be squeezed since the price is low. But with such a big sales volume, I think revenue will jump and so will the bottom line."

Astra's best selling cheap car is priced at around $16,000, compared to an LCGC which is expected to be priced at below $10,000.

Industry experts say the LCGC industry will create a new market now served by used cars. The used car market involved 2-3 million vehicles in 2012.

SMALL COULD BE BIG

Suzuki Motor Corp said on Sunday it would invest 60 billion yen ($611.4 million) to build a new passenger car plant in Indonesia.

Japan's fourth biggest carmaker by sales volume is set to manufacture small cars in Indonesia based on its fuel-efficient 660 cc mini car "Wagon R" sold in Japan, spokesman Ei Mochizuki told Reuters.

Japanese automakers see the new LCGC law as an opportunity to export the microcar technology behind the country's hugely popular "kei" car concept.

Tuesday's results from Astra underscore the weakening trend in the Indonesian economy as it grapples with slowing commodities exports and declining local consumption due to this year's sharp rise in fuel prices.

"Although the domestic demand outlook remains positive, the increased competition in the automobile market, rising labour costs and declining commodity prices are expected to affect the performance of the business in the second half of this year," Prijono Sugiarto, Astra International chief, said in a statement.

Tuesday's decline was the second consecutive quarter in which Astra has posted a fall in net profit after 14 consecutive quarters of growth.

Astra's closed 2.38 percent higher at 6,450 rupiah on Tuesday, while the broader Jakarta Composite Index rose 0.61 percent. (Reporting by Andjarsari Paramaditha and Fathiya Dahrul, Editing by Jeremy Laurence)