Broker's take: UOBKH upgrades Astra International to 'buy' on share price weakness

UOB Kay Hian (UOBKH) has upgraded its call on Indonesian conglomerate Astra International to a "buy", but with a lower target price of 6,700 rupiah, as it adjusts for the counter's recent decline.

In a report on Monday (Jan 24), analyst Stevanus Juanda noted that the share price of the Jardine unit is "attractive" - having declined 13 per cent over the past 3 months - and has likely fully factored in the impact of the recent fall in commodity prices.

The new target price of 6,700 rupiah for Astra - down from its previous target price of 6,800 rupiah - represents a potential upside of some 21 per cent from its close on Monday (Jan 24) at 5,525 rupiah.

Astra - whose business includes distributing cars, coal mining and operating oil palm plantations - is expected to benefit from a government incentive programme to stimulate car sales.

Juanda is projecting a 15.8 per cent rise in Astra's net profit after tax for its automotive segment in FY2022. The analyst also expects a 17 per cent rise in net profit for Astra's financial services segment, as loan growth should be in line with the performance of the automotive division.

He is estimating that Astra will see a 10 per cent growth in sales volumes of its 4-wheeled vehicles to reach 978,119 units. This is above a projection by Indonesia's automotive industry association Gaikindo's of 900,000 to 950,000 units, which the analyst noted has historically been conservative in its guidance.

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In addition, Juanda is estimating a similar 10 per cent growth in sales volumes of Astra's 2-wheeled vehicles to reach 5.6 million units in 2022.

The analyst is also predicting that the group's net income for its infrastructure, property and information technology segments will see a year-on-year growth of 21.2 per cent, 27.5 per cent and 148 per cent, respectively.

Unfortunately, these strong numbers are likely to be offset by weaker performance at its coal and oil palm divisions - given a recent fall in the prices of both these commodities.

Lower coal prices could drive down net income of Astra's subsidiary United Tractors, which has a coal mining concession, by 11 per cent in FY2022, the analyst said. The group's plantation unit, Astra Agro Lestari, could also see a 23.3 per cent year-on-year decline in its net income from lower crude palm oil prices, he added.

Overall, UOBKH has raised its forecast for Astra's profit in FY2021 by 13.2 per cent, but lowered its FY2022 forecast by 2.3 per cent.

Juanda thinks Astra's profit for FY2022 will likely rise just 3.4 per cent year on year, but said the downside from that flattish growth rate is probably priced in.