ASII - Resilient Performance Could Persist

ASII’s resilient performance is likely to persist despite a challenging macro backdrop in 2023. Normalized growth is acceptable while lingering concern over muted CPO outlook seems tolerable. Auto sector will play a vital role and is likely to contribute around 34% to Astra’s earnings, while the HEMCE segment should be more defensive when commodity price softens. ASII looks appealing trading at 9.1x 2023F P/E or below its -1SD 10-year hist. mean, aside from its astonishing payout ratio of 85%. Maintain BUY, with target price of IDR7,350 (10.9x 2023F P/E). Solid 2022 results, yet softened in 2023 Astra reporting solid FY22 earnings growth at 51% yoy, backed by recovery momentum, high commodity price and strong 4W car sales which grew by 17% yoy and healthy motorcycle 2W sales growth at 2% yoy. FY22 PATMI of IDR28.9 tn was in line with KBVs and street estimates at 99%/98%. Across the net profit segmentation, UT noted as the main driver and saw the highest growth among others at 107% yoy, while automotive grew by 33%yoy to IDR9.7 tn. This year, we expect earnings to normalize and lesser tailwinds could put more pressure to Astra earnings. Our ‘23F PATMI forecast for ASII of IDR27.3 tn is slightly below street estimates. Auto segment to play important role for 2023 earnings Aside from muted CPO outlook which could derail Astra agribusiness arms, our coal analyst viewed that UNTR is in much better position compared to other coal miners as it mining contracting and heavy equipment sales are more sensitive towards coal production volume rather than the coal price. On the flip side, we remain positive on Astra auto segment amid car loan repricing as a result of policy rate hikes. Resilient domestic economy coupled with potential unmuted car loan demand as a result of better purchasing power should overall underpinned this year growth, in our view. We expect auto earnings segment growth at 3.5% yoy and contributes around 34.3% to total earnings, while its HEMCE business at 41.1% followed by financial segment at 18.9%. Solid FY22 4W sales, with strong Jan ‘23 car sales The solid car sales growth of 18.1% yoy in FY22 should become as a solid foundation for 2023, while Jan ‘23 4W sales growth of 11.8% yoy is another prove of resilient demand. A slight contraction on Feb ‘23 car sales is acceptable, as we think strong Jan ‘23 is primarily supported by inventory sales discount. However, we believe that continuing promotion such as huge discount and minimal down payment that could be as low as 0% should underpin the overall growth. Our channel check even found an installment period offer up to 96 months (in preCovid era mostly 60 months). This year, we forecast car sales to reach 966,753 units or largely in-line with Indonesia Automotive Industry Association projection. Holiday allowance to boost sales Holiday allowance (Tunjangan Hari Raya-THR) is the most awaited thing by workers. The additional 1 time paid monthly salary provides more room to spend and this has historically proven underpinned 4W sales post Iedul Fitri period. The pre and post month of the Iedul Fitri contributes an average of around 22.4% to full year figures. Ceteris paribus, our ‘23F for car sales in that period (Mar-May ‘23F) is likely to arrives at 217,822 units and around more than 10 bps higher contribution at 22.5%. We also make simulation for longer period (1H of every year) whereas the contribution is at an average of 46.8%, while for ‘23F is 73 bps higher 47.5%. Maintain BUY with target price of IDR7,350. Our target price of IDR7,350 is derived from SOTP. Currently ASII traded at 9.1x 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.