Astra Internasional(ASII.IJ IDR 5.074 HOLD.TP IDR 5.700) : ICE should sustain its dominance in the 4W market, but lacks ST catalysts; reinitiate with a Hold rating

Astra Internasional (ASII)

ICE should sustain its dominance in the 4W market, but lacks ST catalysts; reinitiate with a Hold rating

Our study concludes that the economic benefit of hybrids/EV in Indonesia is still in question, hence ICE should sustain its dominance.
We forecast ASII’s net profit to decline by 10% YoY in FY24F, as we expect recovery in 4W sales to be offset by weaker mining segments.
We have a HOLD rating on ASII with a TP of Rp5,700. While the current valuation prices in earnings downside, ASII lacks ST catalysts

Expect ICE to sustain market dominance as hybrids/EV economic benefit is unproven. We believe ASII’s valuation de-rating over the past 7 months has been partly driven by the EV story as ASII/Toyota is focusing on hybrids (and less on EV). From our proprietary study, we found that the economic benefit of both technologies is not straightforward due to expensive battery cost and significant ASP differences between ICE and hybrid/EV vs the savings obtained by switching away from ICE. Thus, we believe that ASII can maintain 54-55% 4W market share with 4-5% annual volume growth.

Auto (4W/2W): expect sales to recover, GPM/OPM to be maintained in FY24F

We expect 4W sales to recover in FY24F (+5.5% YoY) on lower interest rates with little contribution from hybrids. On 2W, we foresee flattish FY24F growth before recovery in FY25F given our view of short-term pressure on the middle/low-end segment’s purchasing power. We forecast profit for the auto division to flatten in FY24F, with GPM/OPM maintained at 11%/2%.

Robust financials to offset weaker mining segments. We forecast ASII’s FY24F/ FY25F revenues to grow by 2%/ 6% YoY with core net profit growth of -10%/1% YoY. Our FY24F NP forecast is driven by auto/financials/UNTR net profit growth of -1.1%/5.5%/-20%. We expect the financials segment’s revenue to track 4W/2W sales, while UNTR’s revenue should peak in FY23F before declining 5% in FY24F from further expected coal price normalization.

Reinitiate coverage on ASII with a HOLD rating and SOTP-based TP of Rp5,700

We resume coverage on ASII with a HOLD rating and SOTP-based TP of Rp5,700. At the current 6.1x PE (-2 SD to 8-years mean), we believe the expected FY24F earnings decline is priced in. However, we think the share price lacks ST catalysts with new EV entrants and there is higher risk if regulations and subsidies continue to favor EV. On the upside, a good hybrid product line-up and new subsidies in this segment would support ASII’s 4W sales growth and margins.

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