Astra International (ASII)

KTA from call with the CFO

• ASII retains its confidence in hybrid 4W expansion, given the current needs and infrastructure availability in Indonesia.
• The capital allocation guidance is unchanged with the LT dividend rate to remain at ~40%, still focusing on UNTR and 4W non-manufacturing.
• Maintain Hold for ASII and a TP of Rp 5,100; key risk from weak 4W sales

4W: Hybrid products remain a sweet spot for the Indonesian market

We conducted a call with ASII’s CFO to obtain updates on the company’s strategy and outlook. On 4W business, ASII reiterated its focus to expand its hybrid line-up as part of a market transition from ICE. It retains its confidence in the rational of expanding hybrid products as: 1) ~62% of hybrid 4W sales in FY23 came from Toyota; 2) EV likely to continue facing obstacles regarding the availability of charging stations, as most stations are currently still centered in Jakarta, and also from a big drop in resale value (~30% fall in value vs ~5-12% for hybrids within 12 months). ASII also sees that most of the current EV models also neglect the highest demand 4W types for Indonesian consumers (i.e., 7 seaters, with ASP <Rp 250m). In addition, ASII also sees that EV producers focus on the Jakarta market (with 40% car penetration) somewhat neglecting the ex-Jakarta market with still low penetration (but with challenging infrastructure). Thus, ASII sees that hybrid vehicles continue to fit the sweet spot as there is no requirement for access to charging stations.

Unchanged guidance on capital allocation

ASII’s capex in FY22-23 was spent mainly on UNTR (including its renewables energy business) at >70% of ASII’s total capex, while the remainder was divided between 4W non-manufacturing facilities, used car business (Serasi Autoraya), toll roads, and the healthcare business. On the dividend front, despite the FY23 DPR of 62%, the management gave guidance that the payout ratio may remain at ~40%, unless it sees windfall profit (i.e., from commodities in FY22-23).

Reiterate Hold rating with a TP of Rp5,100; weak 4W sales the main issue

At this juncture, we share ASII’s positive view on its 4W products strategy focus as we also note stronger volume growth of hybrids vs EV in other countries such as China (3M24 BEV sales: +7% yoy, hybrid: +46% yoy) and the US (new BEV shares to total sales declined from 8.1% in 4Q23 to 7% in 1Q24, while HEV sales were maintained at ~8%). However, we think the main drag for ASII now is more on the weak domestic 4W sales, which we expect to decline by 16% yoy in FY24F to 473k units. We maintain our Hold rating and TP of Rp 5,100. ASII currently trades at 6x forward P/E, -1.5 std deviation of its avg.

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