WITH lower coal and crude palm oil (CPO) prices expected in 2023 and recent rate hikes, UOB Kay Hian (UOBKH) has downgraded its call on Jardine Matheson unit Astra International to “hold” from “buy” as it expects negative impacts on the Indonesian conglomerate’s profit growth.

The research house has also lowered its price target on the Jakarta-listed stock to 7,100 rupiah from 8,300 rupiah previously, which is equivalent to 9.02 times 2023 core price-to-earnings estimates.

In a report on Thursday (Oct 6), analyst Stevanus Juanda noted how interest rate hikes have historically affected the profitability of Astra.

While the group’s overall domestic four-wheel (4W) and two-wheel (2W) automobile sales volumes tended to decline overall during a rate hike cycle, he noted that 2W volumes managed to grow by high single digits in the 2018-2019 rate hike cycles.

As such, he has reduced his 2023 4W domestic sales forecast by 18.2 per cent to represent a 10 per cent year-on-year decline.

Based on expectations of coal prices to fall to US$200 per tonne in 2023 from US$325 per tonne this year, Juanda is expecting sales demand for the group’s indirectly owned financial service unit, Komatsu, to be negatively affected.

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A lower net profit after tax (NPAT) growth is also expected for Astra’s subsidiary United Tractors, due to slower growth at its mining service division and coal mining operation. The heavy equipment distributor is forecasted to see a 17 per cent year-on-year decline in 2023. 

The analyst further expects an anticipated decline in CPO to cause weakness in profit growth for Astra’s Indonesian palm oil subsidiary, Astra Agro Lestari, where NPAT is expected to drop by 15.4 per cent on-year.

“Overall, expect Astra International to record an 18 per cent year-on-year decline in 2023 NPAT,” Juanda concluded.