Astra International: Buy; Rp55,200; TP Rp60,000; ASII IJ Not slamming the brakes yet - DBS Vickers

• Strong growth potential intact
• Less impact from auto sector policy changes
• Valuation still attractive; maintain BUY with TP raised to Rp65,000

Strong growth sustainable in 2011. Astra International (ASII)’s 2011 sales and net earnings are expected to grow 14% and 16% yoy to Rp148tr and Rp17tr, respectively. This would be led by (i) 11% earnings growth at its automotive unit, (ii) firm growth at financials, United Tractors (UT), and Astra Agro Lestari (AALI) – combined earnings contribution from these key non-auto units are expected to grow 25% to Rp8.5tr, (iii) 20% higher associate income (2-year CAGR: 32%).

Briefing affirmed our positive view, particularly on its automotive division. Management said the surprisingly strong 2M11 auto sales implied the impact of the potential removal of fuel subsidy for private cars may be less than it had expected, and believes stronger purchasing power played a key role.

Attractive valuation, BUY. Given ASII’s robust earnings momentum relative to its size (+16% yoy in FY11F), well-hedged business model, transparent governance, and high dividend payout policy, its current valuation at 13.5x P/E and 3.5x BV (30% ROE) is not stretched. Near term catalysts are strong 1H11 earnings, possibly stronger Rupiah, delay in halting fuel subsidy, and continued upgrade of street estimates. And as the market realises the proposed policy changes would have limited impact on overall auto sales and growth, there should be renewed interest in ASII. Our sum-of-parts target price is raised to Rp65,000, offering 18% upside from current levels (incl. c.3% dividend yield).