Astra International (ASII.IJ Rp 5,075; BUY TP Rp 5,700) Valuation discount implies auto business is still underappreciated; maintain Buy with a higher TP

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Astra International (ASII IJ)

Valuation discount implies auto business is still underappreciated; maintain Buy with a higher TP

ASII currently trades at a PBV of 1x vs. 2.8x in FY16, despite a similar ROE level of 16% and improved financial and infra segments.
ASII’s share price is 13%-26% below peers’ valuation of its businesses, reflecting underappreciation of financial and auto parts.
We reiterate our BUY rating with a higher TP of Rp5,700, as we believe its resilient 4W market share deserves a higher premium.

ASII trades at half of its historical PBV despite a similar ROE level

We forecast ASII’s ROE to reach 13%-14% in FY25F-FY27F, similar to the FY16 level when ASII was traded at a PBV of 2.8x. Although we do not expect ASII to rerate back to >2x PBV level, we think the market has under-appreciated the improvement in ASII’s earnings and profitability. In FY16, ASII had a lower NPM of 8% (vs. our FY25-27F of ~9%). Our projected HE contribution to total consolidated ASII NP in FY25EF-FY27F is higher at 33% (vs. 20% in FY16), while our auto OPM expectation is lower (Est. 1.7% vs. 2.2% in FY16). Nevertheless, we expect: 1) better contributions from infra and logistics; 2) stable NPM for the financials segment at ~24% for FY24E-FY26E vs ~20% in FY15/FY17 (FY16 was disrupted by a one-off write off on BNLI).

Ex-conglomerate discount, ASII’s business valuation is at discount to peers

We applied peers’ valuations to ASII’s business segments and assumed no conglomerates discount to arrive at a theoretical break-up valuation. We noted that ASII’s share price is currently 13%/ 26% below our bear/ base case of its break-up valuation, which we think is due to market assigning a bigger discount on ASII’s: 1) auto parts or AUTO (traded at a PER of 5x vs. adjusted Japan-Korean peers at 8.3x) and, 2) financial segment (implied PBV of 1.8x, with ROE of 17%-33%), compared to the recent acquisition by MUFG of Mandala Multifinance at 2.2x PBV with an ROE of only ~12%.

Reiterate BUY with higher TP Rp5,700; strong 4W MS despite competition

ASII’s share price has rallied by 15% for the past 1M, as 4W sales continue to show recovery (7M24: -17% vs. 6M24: -19% yoy), and ASII's market share remains strong at ~57% despite competition from Chinese players. We continue to expect 2H24E 4W sales to come in 6% higher vs. 1H24, amid decent momentum in GIIAS (+11% yoy vs. FY23). We reiterate our BUY rating for ASII with a higher TP of Rp5,700 (+7%), implying 9x PER, as we believe ASII’s solid 4W market share deserves a higher valuation premium. ASII currently trades at an undemanding PER of 6.6x (-1 std dev of its 5-year mean). Downside risks: 1) NPF formation in the financial segment; 2) 4W sales losing momentum post-GIIAS.

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