Brokers’ take: CGS-CIMB initiates Astra International with ‘add’
Samuel Oh
CGS-CIMB has initiated coverage on Astra International with an “add” call and a target price of 7,925 rupiah, and highlighted the stock as one of its top picks among Indonesian large-cap companies.
In the report on Thursday (Jul 6), the research team said it expects the automotive conglomerate to achieve higher market share and net profit in the near term, amid favourable market conditions in Indonesia.
CGS-CIMB estimates Astra’s car market share in Indonesia to rise to 57 per cent in FY2023, from 55 per cent in FY2022. This is likely to be driven by a more aggressive sales approach from the group’s main car brands, Toyota and Daihatsu.
Noting that Toyota and Daihatsu launched new models in the high-volume segments in the year to date, the analysts believe this trend will continue into H2 FY2023.
The motorcycle segment is also expected to post strong sales growth of 25 per cent in FY2023. CGS-CIMB is confident in the resilience of this market, highlighting that motorcycle sales have “so far been unfazed” by the September 2022 fuel price hike.
With minimum competition in the car market and motorcycle sales to recover to pre-pandemic levels, Astra’s FY2023 net profit from its automotive business is estimated to grow by 14 per cent year on year.
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The group’s overall bottom line is projected to be boosted by the automotive and financing businesses, where total contributions are projected to hit an eight-year high in FY2024.
Such developments should drive Astra’s return to net profit growth by FY2025, said CGS-CIMB.
While its subsidiary United Tractors (UNTR) is expected to post revenue declines in the near term, the research house expects the drag on Astra to peak in FY2024, with UNTR’s contributions to the group’s revenue bottoming at 32 per cent.
CGS-CIMB said the rising popularity of electric vehicles (EVs) in Indonesia’s car market will not pose much threat to Astra, as its penetration rate is “very low”.
Instead, the research house thinks Astra stands to benefit from the rising popularity of hybrid vehicles, given plans to ramp up hybrid model launches for Toyota.
The analysts noted Astra is currently trading at 9.5 times estimated FY2023 price-to-earnings (PE) ratio, which is below its five-year average of 11.5 times 12-month forward PE.
Based on FY2024 projections, the target price’s 11.5 times ratio is higher than Astra’s single-digit PE ratio between 2020 and 2022, noted the research team.
CGS-CIMB estimates the group to achieve a dividend yield of 4.3 per cent for FY2023.
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