ASII - A solid start to walk through 2023

1Q23 earnings beats ours and street’s expectation by 4.5%/3.3% on the back of solid growth from its 3 major business drivers; while on quarterly basis, PATMI surpassing our 1Q23F by 3.4%. We expect to see continuing solid results in the following quarters driven by better auto demand with stable financial services and HEMCE business, aside from its payout ratio which we believe will continue to be attractive. We also like Astra’s spirit to fronting all the business challenge by planning to allocate a massive capex against the cycle. Maintain BUY with target price of IDR7,350 on the back of undemanding valuation as it’s currently trading at 9.2x ‘23F P/E or below -1SD 10-year historical mean of 9.7x. Solid yoy earnings and stronger qoq; 1Q23 results beats ASII booked strong 1Q23 net profit growth at 27% yoy to IDR8.72 tn on the back of solid growth across the board (topline growth at 15% yoy). Worth noting that excluding fair value adjustment on GOTO and Hermina of IDR117 bn, earnings still grew at double digit of 25% yoy. On quarterly basis, PATMI grew even stronger at 55.3% yoy helped by more manageable opex and better fair value adjustment on investments in GoTo and Hermina. Historically, first quarter earnings contribution to its full year was approximately 26.9% (5yr average). ASII’s 1Q23 earnings beating both ours and street estimation by 4.5% and 3.3%. On 1Q23 stand alone; our 1Q23F for ASII of IDR8.32 tn was beaten by ASII’s 1Q23 actual result by 3.4%, while consensus forecast is more pessimistic at only IDR6.0 tn. Expecting ‘23F PATMI at IDR27.3 tn We expect Astra 1Q23 earnings solid result will continue in the remaining quarters. We forecast ‘23F PATMI for Astra at IDR27.3 tn or aligned with street expectation. We have incorporated weakening agribusiness segment, stable HEMCE business and stronger automotive demand. We also expect auto loan yield increase will dissipate in the remaining quarters of this year and thus could positively impacting to a better auto loan demand appetite and overall will benefits Astra’s financial services segment. Solid segmentation results from 3 major growth drivers Astra’s segment net income saw solid growth across the board excluding agribusiness and property. Despite only making small portion of total PATMI, infrastructure and logistic arms as well as IT segment recorded the highest growth at 71% yoy and 58% yoy. Astra’s backbone business, automotive, saw 36% yoy growth, while the remaining major of its earnings driver, HEMCE and financial services also saw solid growth of 27% yoy and 26% yoy, respectively. We expect Astra’s net profit this year will continue to be underpinned by its main automotive business at around 36.2%. Other major segment earnings driver of HEMCE and financial services could together underpinned total earnings by contributing around 63.3%, or 192bps higher compared to FY22’s of only 61.4%. Attractive dividend payout likely to continue As a conglomerate, we do really like ASII generosity on its 2022 total dividend amounting IDR640/share or equal to IDR22.34 tn which recorded as the highest (dividend final of IDR552/share). Assuming Astra could reach ours and street expectations for its ‘23F earnings with 50% of DPO, then Astra will disburse around IDR330-IDR350 of dividend per share this year. Worth bearing in mind that excluding 2022 DPO, Astra 5-year historical dividend pay-out was at 39.2%. We also continue to like Astra for its spirit to facing the 2023 challenges by planning to allocate a massive Capex of up to IDR40 tn, despite all the potential headwinds. Majority of the capex, or around 60% from the amount will be dedicated for its HEMCE arms. Maintain BUY with target price of IDR7,350 Our intrinsic value for ASII is IDR7,350 which derived from SOTP. Currently ASII traded at 9.2x 2023F P/E or below -1SD 10-year historical mean which already looks undemanding despite several headwinds on its commodity-related business. Risks to our call: a) lower-than-expected car, CPO and Coal sales volume and b) higher than expected auto loan yield affecting demand.