ASII - Expecting Resilient Performance

We expect the solid auto segment to persist and will underpin Astra’s performance. Using the simulation of historical 1Q contribution to FY figures, ASII’s 1Q23 earnings might continue to record positive yoy growth. Solid demand and continuing promotion from car loan financing as well as dealer in such competitive market will become as the affordability safeguard. Maintain BUY with target price of IDR7,350 on the back of undemanding valuation (8.9x ‘23F P/E or below its -1SD 10-year historical mean) and chunky dividend yield. Strong Feb ‘23 to support 1Q23 Feb ’23 domestic 4W sales came in at 86,954 units (7.4% yoy) bringing the industry car sales to 181,077 unit in 2M23, or grew by 9.6% yoy. Of the total Astra continue to lead the competition with total volume sales at 97,319 unit (11.4% yoy) or equal to 54% of market share, while the remaining sales of non astra which grew by 7.6% yoy driven mainly by the growth from Honda and Hyundai sales. Worth noting that Toyota remain taking the largest portion of the total sales at 56,386 unit (17.9% yoy). 1Q23 sales volume to remain solid Aside from our expectation on solid 1Q23 car sales volume, we believe the holy month of Ramadhan will make another significant contribution to overall cumulative sales, as historically proven so. The pre and post month of the Iedul Fitri contributes an average of around 22.4% to full year figures. That said, ceteris paribus, our ‘23F for car sales in Mar-May ‘23F period is likely to arrives at 217,822 units and around more than 10 bps higher contribution at 22.5%. Our simulation for longer period also revealed that half year contributes equal to at an average of around 46.8%, while for 1H23F it could underpin 47.5% to ‘23F industry sales, or 73 bps higher. Expect in-line 1Q23 earnings While waiting for 1Q23 results, we try to measure the impact of yearly first quarter to full year earnings. In the past 5 years, 1Q contributes at an average of around 26.9% to full years result. However, we do aware that such high contribution was primarily caused by the high based effect of the recovery momentum in 1Q20 of 46.8%. Hence, we are taking more conservative outlook by averaging that period with 1Q21 whereas growth start to normalized. Using this hypothesis, ASII 1Q23 PATMI could remain grew positive and reach IDR7.05 tn (+2.9% yoy) versus 1Q22 at IDR6.85 tn. Of the total, automotive segment will likely remain as the backbone, while we also expect HEMCE segment to continue solid, aside from its financial arms. Unmuted demand and continuing promotion as a cushion Despite the transmission of policy rates hike to car loan yield, as of Jan ’23 appetite for 4W loan demand remain strong, reached IDR117.29 tn or grew by 15% yoy. The figure was notably 140bps higher compared to FY22 growth at 13.6% yoy. Nonetheless, we might see higher vehicle loan yield going forward. On the flip of coin, we expect solid business activity in 1H23 and unmuted car sales demand could become as shield to the potential higher car loan yield. As of Jan ‘23 consumer loans interest rate has adjusted slightly to policy rate hikes trend by 6bps to 10.38% or grew by the same rate in Jan ‘23 at 10.36%, whereas 4W sales recorded 11.9% yoy higher. We also view, continuing promotion from car loan financing and car loan dealer to maintain market share could overall support the growth. Huge dividend and capex As a conglomerate, we do really like ASII generosity which will request for an approval on its AGM in April ’23 to disbursed dividend final of IDR552/share, or equal to IDR22.34 tn which recorded as the highest (excluding interim dividend of IDR88/share). Amidst all the headwinds, we also like ASII spirit to facing the 2023 challenges by allocating a massive Capex of IDR40 tn, whereas around 60% of the amount will be dedicated for its HEMCE business. Maintain BUY with target price of IDR7,350 Our intrinsic value for ASII at IDR7,350 is derived from SOTP. Currently ASII traded at 8.9x 2023F P/E or below its -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.