Astra International (ASII IJ)

Potential boost from rate cut and opsen tax postponement

• The lower interest rate has historically had an inverse correlation with ASII share price and is positive for 4W sales, with a 9-16 months lag.
• We expect 4W sales to improve as ‘opsen’ tax is postponed, but higher VAT may compress margin upside (FY25F: 1.6% vs ~2% in FY22-23).
• We reiterate our Buy rating with a TP of Rp5,900. ASII is a good pick for an interest-rate play with undemanding valuation and ROE of 15-16%.

Historically, lower interest rate benefit ASII’s share price and 4W sales

Historically, lower interest rates have shown an inverse correlation with ASII's share price, suggesting that a decrease in rates may boost sentiment (see exhibit 1). This is derived from the expectation of higher 4W sales, which historically have also benefited from lower rates but with a lag of around 9-16 months (see exhibit 2). Thus, in this cycle, we expect a meaningful improvement in 4W wholesales by 2H25F. We reiterate our 4W wholesale target of 946k (+10% yoy), higher than the Gaikindo target of 900k. Additionally, we expect a subsidy on luxury tax of 3% for hybrid models and the postponement of ‘opsen’ tax to boost 4W sales in FY25F. Previously, under the scenario of opsen tax implementation, new car ownership costs could increase by around 7-8% in several areas in Java, potentially impacting 4W sales.

Volume recovery will continue, yet margin upside will face challenge

The government will raise VAT to 12% for 4W sales, starting from Feb25. Based on our channel checks, we expect Toyota car prices will increase by Rp3-22mn, depending on the type. For example, we expect the Avanza price to increase by around Rp3mn (~1.2%) after the new VAT. We anticipate that ASII will face challenges in raising prices beyond the VAT impact, given the slow recovery in overall purchasing power. While there is a potential risk to volume growth, we believe the primary impact of the higher VAT will be on margins. Thus, we expect limited auto OPM improvement to 1.6% (+30 bps yoy) in FY25F, still lower than the FY22-23 levels. Furthermore, we have noted a build-up in Toyota inventory at the retail level since Jul24.

Reiterate Buy with TP Rp5,900. Undemanding valuation with good ROE

We reiterate our Buy rating with an SOTP-based TP of Rp5,900, implying an FY25F PER of 7.3x. ASII currently trades at a P/E of 5.8x, -1 std dev of its 5-year mean. We believe ASII’s ability to sustain its past 3-year ROE at ~15%-16% is underappreciated as it continues to trade below-mean PER and <1x PBV. Downside risks: 1) Faster EV transition, combined with the lack of ASII offerings in EV; 2) Higher-for-longer, or a reversal in the interest rate cycle.

… Read More 20250122 ASII