Astra International, Well-Diversified Earnings Base

The large majority of ASII’s earnings are related to Indonesia’s domestic consumer sector, which is pretty much in line with the country’s macroeconomic picture. The company’s earnings growth is also driven by growing coal mining activities. Given its earnings structure, we believe ASII can benefit immensely from strong domestic economic growth, supported by rising income per capita and low interest rates. Accelerated infrastructure projects can also benefit ASII in the form of stronger heavy equipment sales.

Low interest rate boosts auto sales
We see promising auto sales growth for FY12, given the fact that the benchmark interest rate is now at the lowest level. The Indonesia Auto Industry Association (Gaikindo) estimates the 4W vehicle sales volume for FY12 to grow 10% y-o-y, faster than our estimate of 7.5% y-o-y. Notably, the central bank lowered its benchmark interest rate to 6.0% in November from 6.5%. This is likely to sustain the auto sector’s high-growth rate.

Vehicles sales back to normal by year-end
As the Thai floods gave rise to severe shortages of component supply, we expect the domestic monthly car sales volume to drop around 10% m-o-m in November. However, we production getting back on track by year-end. Component supply shortages would affect sedan car sales the most, though the impact on production of Toyota Avanza would be modest. On the flip side, 2W vehicle production would not be affected as local components are widely available.

Solid performance at heavy equipment division
We believe that the trend of strong earnings from its heavy equipment division should continue next year on the back of solid demand from coal mining, plantation and infrastructure-development contractors. Notably, heavy equipment revenue jumped to IDR40trn (42.9% y-o-y), thereby boosting its EBIT to IDR5.5trn (+38.8% y-o-y) from January-September.

BUY, TP at IDR82,500
We are valuing ASII using the sum-of-parts (SOP) valuation method, as we value the company’s individual business units as well as on a stand-alone basis. Our valuation gives rise to a Fair Value of IDR82,500, which implies a 17.7x-15.9x FY12-13f earnings.