• Secular earnings growth intact, but fewer than expected retired cars led us to cut FY18-20F profit by 11-12%
• Expect 2Q18F profit to come in at Bt38m (+14% yoy, +8% qoq) driven by a larger long-term fleet of 1.3k new cars and sale of 280 used cars
• Upgrade to OUTPERFORM, cut TP to Bt6.0 after earnings downgrade; strong business model at reasonable valuation

Secured 3.0k new cars for this year, in line with target

The share price has plunged 38% in the past one month to a 12-month low of Bt4.02/sh given weak market sentiment and high valuation. After speaking to management, we see value emerging at this level. ASAP has reached their target of 3.0k cars (net addition) for long-term rental, taking the fleet to 14k units by end FY18. The short-term car rental business (including asap GO) is generating Bt7-9m revenue monthly and should reach breakeven in 3Q18. However, our previous assumptions for used-car sales in FY18-20F were aggressive as the larger number of retired cars would come in late FY20-21F instead of FY19F, and some clients might extend their long-term (5-year) contracts upon expiry. Opening of asap Auto Park and the franchise, which should boost GPM for sale of used-cars in FY18F, is delayed to 4Q18. This would reduce GPM for sale of used-cars to 10.5% vs our previous forecast of 11.7%. Overall, we trimmed FY18-20F profit by 11-12%.

Expect decent 2Q18F profit, 1H18 to reach 44% of FY18F profit

For 2Q18F, we expect ASAP to add 1.3k new cars to the long-term fleet and sell 280 used cars, contributing to 1.0k net add and taking total fleet to 12.5k units. We estimate total revenue at Bt627m, comprising Bt515m from car rental business and Bt112m from sale of used-cars. We expect GPM for car rental business to improve by 0.6ppt yoy to 24.5% given better economies of scale and maintain 10% GPM for the sale of used cars. SG&A and interest expenses should rise following a larger long-term fleet. We estimate ASAP will book Bt6m income tax given Bt220m tax shield this year due to investment tax incentives since FY16-17. Overall, ASAP should book Bt38m net profit and take 1H18 profit to 44% of our full year earnings forecast.

Upgrade to OUTPERFORM, lowered TP to Bt6.0; weak share price is an opportunity to accumulate the stock

We rolled over valuation to FY19F and derived TP of Bt6.0/sh (from Bt8.0) based on 22.0x FY19F PE (from 30x), implying 1.2x PEG based on 19% 4-year earnings CAGR over FY17-21F. The stock may look expensive but it deserves a trading premium given a concrete growth strategy, pro-active management, and ability to deliver on performance. Turnaround of the short-term car rental business and growth of asap Auto Park will be upside risk to earnings.