RHB Indonesia Morning Cuppa - 20 September 2016- (Astra International)

Good morning,

Astra International: Wholesale Revenue Growth May Continue

Astra’s wholesales segment’s growth is likely to remain strong going forward based on the company’s robust retail sales in August. We think it likely that Astra will maintain its profit margins thanks to lower sales discounts following new model launches. Maintain BUY and SOP-derived IDR9,000 TP (13% upside), which implies an 18x FY17F P/E.

¨ Robust retail sales a good indicator for wholesale growth. Following the highest monthly car retail sales booked in August by Astra International’s (Astra) Toyota authorised dealer Auto2000 (total retail sales: 16,853 units (+59% YoY) vs January-August: 113,342 units (+23% YoY)), we opine that inventory at dealer level for this marque is currently at low levels. Hence, we believe Astra is likely to continue booking strong Toyota wholesale revenue growth in the following months.

The Avanza and Calya models were the two main contributors, with total sales reaching 4,776 and 3,790 units respectively. This was equivalent to 28% (Avanza) and 22% (Calya) of Auto2000’s total sales for the month.

Note that Toyota accounted for around 65% of Astra’s 8M16 wholesales, with Daihatsu (32%), Isuzu (3%), UD Trucks (0%) and Peugeot (0%) making up the rest.

♦ Higher low-cost green car (LCGC) sales contribution possible. There is a possibility that Astra’s margins can improve or stabilise despite higher LCGC sales. Based on our estimates, the segment’s wholesale contributions increased to 35% in August from a 20% average in January-June as the domestic car market demand is now shifting towards low-priced cars.

Now, while LCGC profit margins are likely lower than that of regular cars, we think it is still too early to say whether Astra’s EBIT margins will come lower. In fact, its auto division’s NPM actually increased to 9.2% in 2Q16 from 7.1% in 1Q16 and 7.2% in 2Q15 despite higher LCGC sales contributions. Other factors, such as sales discounts and IDR/USD currency movements also significantly impact the company’s profit margins.

Currently, Astra’s sales discounts are declining following the launch of new models, while the IDR has strengthened against USD and become more stable.

♦ Maintain BUY. Our SOP-based IDR9,000 TP implies 18x FY17F P/E.

The key risks to our call include:

i. Weakened consumer spending;

ii. The IDR depreciating against the USD;

iii. Finance companies’ NPLs. (Andrey Wijaya)

Link to report: Astra International : Wholesale Revenue Growth May Continue

Link to Daily report: Astra International : Wholesale Revenue Growth May Continue

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Reuters’ survey indicates that Indonesia’s CPO output likely rose for a fourth straight month in August. The production is estimated to increase only by 1% MoM to 2.83m tonnes. The survey also showed that August export of CPO was recorded at 1.74m tonnes or -7.2% MoM. While domestic consumption is recorded at 1m tonnes. August’16 Indonesia palm oil inventory is estimated to decrease by 9% MoM to 1.7m tonnes. (Jakarta Globe)

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