Astra International (ASII IJ): Decent m-m recovery in Dec 20 volume

What’s new:

1)      Dec 2020 4W industry data showed a monthly wholesale volume of 57.1k units (-34.8% y-y, +6.1% m-m), excluding LCGC. The industry LCGC volume was down by 55.8% y-y, but up by 15.8% m-m to 8,386 units. This brings the nationwide wholesale volume to 532k units in 12M20 (-48.6% y-y).

2)4W retail sales volume was up by 21% m-m and 40% m-m in November and December 2020, respectively.

3)In Dec, Astra’s 4W wholesale volume saw a 34.2% y-y decline, but booked a 10.6% m-m improvement, bringing the 12M20 volume to 268k units (-49.5% y-y), and its market share was down to 50.8% in 2020. Toyota saw a 21.1% m-m volume increase, while Daihatsu posted a 4.3% m-m volume decline in Dec 2020.

Our take:

1)      While the wholesale volume was weak in Dec 20, we think the significant improvement in retail volume in Nov-Dec is encouraging, albeit at a slightly higher dealership pricing discount. In addition, a more positive note can be seen on Astra’s improving retail market share to around 52%, especially when its competitors are offering more aggressive offers through a lower down payment and/or higher dealership discounts. Going forward, we believe both 4W and 2W demand are likely to see a strong recovery given the: 1) potential improvement in GDP from an economic recovery post COVID; 2) continued increase in commodity, particularly coal and CPO, prices which could potentially spur consumption, and thus demand for 4W and 2W; and 3) potential new products, namely new Toyota Avanza and Daihatsu Xenia, which could be introduced sometime in 3Q or 4Q this year. That being said, we think a meaningful 4W volume recovery might not be seen until 2H21 with better progress on vaccines and higher mobility in the Greater Jakarta area.

2)Wholesale 4W volume recovery in Nov-Dec 20 was slightly weaker than our expectations (6% lower than our forecasts). However, we argue that a robust volume recovery is imminent, with our forecasts of 35% y-y and 30% y-y volume increase in 4W and 2W, respectively. We could also see a significant improvement in auto margin given better operating leverage and an increased utilization rate. Dealers’ inventory level improved in December to around 1.5 months, based on our checks. On a separate note, we also see potential catalysts from EV and HEV cars in the next 1-2 years, as Astra is planning to get exposure to this segment.

3)Aside from the auto segment, Astra’s heavy equipment and CPO businesses will likely to see a solid recovery this year. With recent the improvement in coal and CPO prices, we believe there is more upside for UNTR (UNTR IJ, IDR26,200, SELL) and AALI’s earnings performance in 2021. Please note that we are factoring in average prices of USD65 for coal and USD700 for CPO in our 2021 forecasts.

Increasing our TP to IDR6,500; maintain HOLD on valuation. We factor a higher P/E multiple of 16x from 14x previously into our auto valuation, and adjust slightly the UNTR and AALI estimates in our SOTP valuation, resulting in a higher TP of IDR6,500/share. However, we argue that ASII’s share price has shown a significant increase of 100% in the past one year and 37% in the past three months – we believe the market has already somewhat priced in the likely recovery in 2021 and the stock is now trading above its 10-year mean at a 16.4x 2021E PER. Thus we maintain our HOLD stance on ASII. Downside risks to our view include further deterioration in the economy and a longer-than-expected vaccine progress. Upside risks are a better-than-expected GDP recovery in 2021 and higher-than-expected recovery in commodity prices.