Astra International ASII IJ - Buy - Assessing the drivers of Astras profit
In autos, as discussed in our previous Anchor Report, Shifting gears —
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Astra Otoparts - AUTO IJ - Buy - Associates and trading business yield fruit
Automobiles n Components JT GH 819 4th Sep, 2024
Astra Otoparts continues to show resilient earnings, which were driven by its trading business and income from associates. Indeed, its trading business has shown steady margins and growth thanks to the strong brand equity of AUTO products, in our view. While the associates’ income continues to provide buffer given the strong ecosystem, in our view. Manufacturing margins declined as a function of lower production volume. We maintain our Buy rating on AUTO.
Trading business supports main business
Trading business’ gross margin improved from 19% in 1Q22 to 23% in 2Q4, driven by sales of vehicle batteries, according to the company. Its gross profit also grew 6.6% y-y to IDR1,070bn in 1H24 thanks to the changing cycle from users.
Associates’ income still supports earnings
Associates’ income reached IDR196bn in 2Q24, growing 12.5% y-y. This still contributed around 52% to the company’s total earnings as of 2Q24 (see Fig. 3). We believe the drivers of the associates' income are Denso Indonesia (unlisted) and GS Battery Indonesia (unlisted), thanks to their strong brand equity.
Worst is over, maintain Buy
We maintain our Buy rating on AUTO driven by its resilient trading and associates’ income. The company has also shown good track record in paying dividend. We set our TP at IDR2,900, implying an upside of 24%. Our TP is based on DCF valuation, with WACC of 10.8% and a terminal growth rate of 2.0%. At our TP, the stock would trade at a 2024F P/E of 7.2x (vs 5.9x at the current price). Upside risks are: 1) better-than-expected sales in trading operations, 2) higher associate contributions, 3) improvement in manufacturing margins, and 4) favorable market conditions. Downside risks are: 1) slowdown in trading operations, 2) weak income from associates, 3) continued problems in manufacturing operations, 4) heightened competition, and 5) unfavorable macroeconomic factors.
INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general.
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| Rating Remains | Buy |
| Target price Remains | IDR 2,900 |
| Closing price 2 September 2024 | IDR 2,280 |
Indonesia Research Team
Jupriadi Tan (jupriadi.tan@verdhana.id) and
Gerald Hugo (gerald.hugo@verdhana.id)