RHB - Company Update

*Astra International | Buy (Maintained)*
Consumer Cyclical | Auto & Autoparts
_Robust Auto Sales, But Bumpy On Finance Services_
Target Price: IDR7,350
Price: IDR6,600

May sales numbers indicate that Astra’s car wholesale would continue
improving MoM. 2W vehicles also maintained its robust sales. Maintain
BUY with a lower SOP-based TP of IDR7,350 (from IDR7,400, 11% upside). The reduced TP is triggered by its lower financial services unit value while our lower forecast is due to a drop in our CPO price estimate. Agri and its financial services unit accounts for c.17% of Astra’s value. A majority of Astra’s earnings and fair value are still driven by its auto business.

*Improved vehicle wholesale*. We expect Astra International (Astra) vehicle sales recovery – which started in March – to continue to improve in 2H16. In our calculation, Astra’s car market share increased to 50.8% in 5M16 (vs 50.3% in 5M15), while its motorcycle market share rose to 72.7% (from 68.1% in 5M15). The low-cost-green car (LCGC) and medium-SUV Toyota Fortuner were the main drivers of car sales growth. Astra has reduced its inventory days to a lower level at its distributors (currently one month, from two months), hence the company can now better manage its sales.

*However, Astra Agro Lestari (Agri) earnings were lower* . Given the lower CPO price assumption, we revise down our FY16 and FY17 earnings estimates to IDR17trn (-6%) and IDR19trn (-4%). While we continue to expect some price support for CPO in the near term (on the back of the current low inventory levels), we believe the impact of the El Nino on CPO prices has already been fully reflected. The catalyst required to move prices upward in a significant manner would be a turnaround in demand growth. Its agribusiness accounted for 14% of Astra’s 1Q16 earnings.

*Reduced TP on lower financial services unit value* . We lower our SOP based TP to IDR7,350, driven by its lower financial services unit value. While its vehicle finance unit’s credit quality has been improving, non-performing loans (NPLs) from Bank Permata (Astra holds a 44.6% stake) is likely to increase in 2Q.

*Maintain BUY*. Although Agri and its financial services unit were a drag, we maintain BUY on Astra. Both units account for only c.17% of Astra’s fair value, while 75% of Astra’s fair value is still related to its auto business. Auto and its related financing accounted for c.70% of the company’s consolidated earnings. We see auto sales improving significantly in the near future.