Performance of Indonesia's Astra International to Improve in 2016?
The performance of Astra International, one of Indonesia's leading diversified conglomerates (but particularly known for being the dominant force in the country's automotive industry), is expected to improve next year on the arrival of new car models, estimated accelerated economic growth and its rivals' stagnating production capacity expansion. As such, Astra International should be able to increase its market share and feel less need to offer its cars to customers at discounted rates.
Most domestic and foreign institutions agree that economic growth of Indonesia - which has been slowing since 2011 - will accelerate in 2016, particularly on improved public spending. The World Bank wrote in its latest Indonesia Economic Quarterly that Indonesia's GDP growth is estimated to grow from 4.7 percent (y/y) in 2015 to 5.3 percent (y/y) in 2016. As such, people's purchasing power will accelerate accordingly. Especially, demand for the multi-purpose vehicle (MPV) is expected to grow from 2016 onward. Moreover, Astra International's performance will be supported by the launch of new car models.
In terms of Indonesian car sales (during the January-November 2015 period) Astra International held a market share of 53 percent. In recent years, Astra International has lost a couple of percentage points in terms of market share as competition in the automotive industry has risen.
Due to reduced purchasing power and weak demand for cars, Indonesian car manufacturers started to offer their products at discounted prices. This year discounts reached up to 9 percent (while at the end of 2014 cars were sold at 13 percent discount). However, discounts are expected to be limited in 2016 as the automotive business is expected to grow 8 percent (y/y) on higher demand.
Stock Quote Astra International - ASII:
Astra International's stock chart shows a sharp fall in early June 2012 as the company conducted a 1:10 stock split, thereby making the company's shares more affordable and increasing its liquidity
But Astra International's business is not confined to the automotive sector. The Astra Group is a diversified conglomerate engaged in the automotive, agribusiness, heavy equipment (mining and energy), financial services, information technology and infrastructure & logistics sectors. Due to its presence in various industries the company is regarded the barometer of the Indonesian economy: when revenue and profit of Astra International drop then economic growth of Indonesia is likely to show a decline as well.
Astra International's subsidiary United Tractors, for example, continues to be plagued by persistently weak demand for heavy equipment amid low commodity prices. United Tractors is the largest distributor of heavy equipment in Indonesia.
Tira Ardianti, Head of Investor Relations at Astra International, said challenges will continue in 2016 for the company as Indonesia's economy will grow below the 6 percent level. Moreover, the international context is still not conducive (for example the low commodity prices). However, Ardianti is convinced that the slowdown (of both Astra International and Indonesia's economy) has hit its bottom, meaning that from 2016 onward there should be acceleration of growth.
Future Projection Financial Performance Astra International:
| 2013 | 2014 | 2015F | 2016F | 2017F | |
| Net Revenue | 193,880 | 201,701 | 188,248 | 210,359 | 244,111 |
| Net Profit | 19,417 | 19,181 | 16,658 | 19,252 | 21,829 |
| P/E Ratio (x) | 13.3 | 13.5 | 15.6 | 13.5 | 11.9 |
| PBV (x) | 3.1 | 3.4 | 3.3 | 2.9 | 3.3 |
in billion of IDR rupiah, unless stated otherwise
Source: Trimegah Securities