PT Astra International Tbk.

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1 PT Astra International Tbk. Standing Ground NEUTRAL (TP: IDR 8,625) 31 October 2018 We change our rating on PT Astra International Tbk (ASII) from ADD to NEUTRAL with end-of FY19 TP of IDR 8,625, derived from SOTP valuation with implied consolidated FY19F P/E and P/BV of 14.7x and 2.3x respectively. As of 9M18, Astra reported consolidated revenue of IDR tn (+16% YoY), accounted for 74%/78% of our and consensus estimate, whereas at the bottom line, net profit came in at IDR 17.1 tn (+21% YoY), reaching 78%/79% of our and consensus estimate. Across business segments, 9M18 posted continuous recovery though weak CPO price continues to weigh down Agribusiness performance. In the Auto segment, company managed to book IDR 79.6 tn sales as of 9M18 (+11% YoY; 77% of our FY18E) despite 4% lower car sales YTD. At the wholesale level, national 4W sales grew by 7% YoY. Astra, however, recorded lower car sales in the period, which cost them 4% of their market share. This was due to rising competition from Mitsubishi and some Chinese automakers. Nevertheless, demand shift from LCGC/LMPV to higher-price-point models (i.e. Rush and Terios) has helped to alleviate pressure from company s bottom line. In 3Q18, company also increased production capacity for Rush and Terios by ~3,000 units, which caused Astra s market share to rebound on a quarterly basis from 48% in 2Q18 to 52% in 3Q18. On the LCGC segment, Astra still holds its position as the market leader and even is able to increase the market share from 74% in 2Q18 to 81% in 3Q18. On the flip side, stronger economic recovery also reflects on 2W sales as both national and Astra s sales grew by 9% YoY, an increase after 3 years of declining sales. As of 9M18, Astra s market share in 2W segment remained stable at 75%. Despite recoveries shown in 3Q18, we remain cautious on the overall outlook due to: 1) tight competition in 4W segment, 2) rising interest rate environment, and 3) liquidity scarcity in the financial system. Going forward, we believe overall outlook to remain challenging due to tight competition in 4W. Meanwhile, Mitsubishi- Nissan cooperation and new models built by Chinese automakers may continue to pose a threat especially as liquidity in multi finance companies nationwide continues to tighten while Wuling had stated that they plan to enter the multi finance business in Indonesia. Lastly, as BI ended the 3-year easing monetary policy, borrowing cost became more expensive, which may affect auto sales given that the industry is still buyer s market and credit demand is price-sensitive. Evan Lie Hadiwidjaja Head of Research ext. 615 evan.hadiwidjaja@sinarmassekuritas.co.id Richardson Raymond Equity Analyst ext. 159 richardson.raymond@sinarmassekuritas.co.id Stock Information Sector Bloomberg Ticker Automotive ASII IJ Market Cap. (IDR tn) Share Out./Float (mn) 40,484/20,175 Current Price 7, week Target Price 8,625 Upside (%) 9.2% Share Price Performance 52W High (01/24/18) 8,750 52W Low (07/03/18) 6,100 52W Beta 1.3 YTD Change (%) -4.8% Relative Valuations Trailing P/E 14.7x Forward P/E 14.7x Trailing P/BV 2.4x Forward P/BV 2.3x Highlights (IDR Bn) E 2019F 2020F Revenue 181, , , , ,034 Gross Profit 36,432 42,368 51,682 54,604 59,024 EBITDA 21,423 25,936 34,091 36,066 39,541 % growth 21.1% 31.4% 5.8% 9.6% Net Profit 15,156 18,881 21,941 23,709 25,175 % growth 24.6% 16.2% 8.1% 6.2% EBITDA Margin (%) Net Margin (%) Return on Asset (%) Return on Equity (%)

2 Breaking down segments, financial services continued to show recovery catalyzed by lower credit cost as asset quality remained relatively stable. Under the segment, bottom-line growth was supported by FIF which recorded IDR 1.7 tn net income (+18% YoY). Consumer financing however, saw a 4% decrease in the amount financed as company turns more conservative after LCGC-induced NPL. From other subsidiaries, TAF recorded negative earnings while Permata also recorded lower net income compared to last year (as there was a one-off gain on the sale of NPL last year). From asset quality point of view, Permata s NPL came in at 4.8% (+18 bps YTD), though loan loss coverage is maintained at a healthy level of 188%. As growth in loan portfolio exceeded third party funding (15% YoY vs 5% YoY), LDR inched up to 92%. On the bright side, the percentage of restructured loans continued to decline to 11.4% of total loan portfolio as of 9M18, with category 1 and 2 loans accounted for 82% of total restructured loans. From HE business, United Tractors, in which Astra holds a 59.5% interest, recorded net profit of IDR 9.1tn as of 9M18, well above our and consensus expectation 88%/87%. Across business lines, PAMA posted the highest earnings growth (+36% YoY) followed by construction machinery (+22% YoY), which as of 9M18 sold 3,681 units of heavy equipment (77% of our FY18E where 53% of the units sold are attributable to mining sector). Higher-than-expected earnings were driven by strong operational execution (Komatsu +34% YoY and PAMA +22% YoY) as well as higher USDIDR conversion rate. In addition, Komatsu s September sales (+33% MoM) also answered concerns on slight sales hiccup in August which was due to pricing contract renegotiation. In Agribusiness, Astra Agro Lestari s performance was supported by higher volume (CPO and derivatives), though lower selling price remains a challenge for company s outlook. Quoting from company s press release, CPO selling price was seen 8% lower at IDR 7,639/kg which was one thing behind AALI s shrinking GPM in 9M18. In addition, rising purchases of external FFB also led to lower profitability this year. In the future, we believe higher CPO prices will be substantial for AALI s performance, both to boost top-line earnings as well as profitability, as production growth will remain moderate. However, uncertainty in CPO prices remains as we have not seen any powerful catalyst that could significantly drive up CPO prices in the near and medium term even with the implementation of B20 mandate in Indonesia. While revenue came in at IDR 13.8 tn (+10% YoY; 77% of our FY18E) as of 9M18, net income was below our projection as it stood at IDR 1.1 tn (-18% YoY; 71% of our FY18E). 2 Automotive Sector - ASII 31 October 2018

3 Income Statement (IDR Bn) E 2019F 2020F Net Revenue 181, , , , ,034 - Automotive 96,062 96, , , ,267 - Financial 17,869 18,768 19,251 19,985 20,540 - Heavy Equipment & Mining Contracting 45,539 64,559 87,611 94, ,662 - Agribusiness 14,121 17,306 17,833 18,515 18,666 Cost of Revenue 144, , , , ,010 - Automotive 85,438 86,381 93,156 95,322 97,648 - Financial 7,622 7,655 7,275 7,552 7,762 - Heavy Equipment & Mining Contracting 35,878 50,075 64,612 70,255 77,948 - Agribusiness 10,445 13,160 14,389 14,606 14,558 Gross Profit 36,432 42,368 51,682 54,604 59,024 Selling Expenses 7,855 10,222 10,914 11,460 11,909 G&A Expenses 11,043 11,820 12,052 12,713 13,391 Operating Profit 17,534 20,326 28,069 29,772 32,978 EBITDA 21,423 25,936 34,091 36,066 39,541 Finance Income 1,699 1,982 2,206 2,264 2,425 Finance Cost 1,745 2,042 4,695 4,597 5,121 Share of Profit of Associates 3,349 6,694 7,043 8,073 8,222 Income Before Tax Expenses 22,253 29,196 34,156 37,026 40,010 Net Income 15,156 18,881 21,941 23,709 25,175 Balance Sheet (IDR Bn) E 2019F 2020F Cash and Equivalents 29,357 31,574 33,846 49,064 59,840 Trade Receivables 18,946 25,351 29,127 30,535 32,361 Financing Receivables 33,216 31,882 36,631 38,402 40,698 Other Receivables 3,964 4,239 4,870 5,106 5,411 Inventories 17,771 19,504 22,051 23,067 24,308 Total Current Assets 110, , , , ,739 Non-Current Receivables 33,365 33,226 38,175 40,020 42,413 Investments 46,542 56,254 61,879 68,067 74,874 Plantations 6,675 6,747 7,151 7,665 8,621 Mining Properties 4,613 5,877 5,709 5,541 5,571 Concessions 5,987 7,081 8,169 9,251 10,327 Fixed Assets 43,237 48,402 49,418 48,668 47,649 Total Assets 261, , , , ,745 ST Borrowings 45,820 43,584 45,856 49,616 50,950 LT Borrowings 25,090 31,394 33,031 35,739 36,700 Account Payables 22,489 29,468 33,317 34,851 36,727 Total Liabilities 121, , , , ,481 Total Equity 139, , , , ,263 Source: Company Data, Sinarmas Investment Research 3 Automotive Sector - ASII 31 October 2018

4 Assumptions E 2019F 2020F USD/IDR 13,436 13,548 15,000 15,000 15,000 ASII 4W Sales (Unit) 589, , , , ,263 ASII 2W Sales (Unit) 4,380,888 4,385,888 4,824,477 5,065,701 5,065,701 ASII 4W Market Share (%) 55% 54% 50% 50% 50% ASII 2W Market Share (%) 74% 75% 75% 75% 75% Coal Price ($/Mt) Average Coal Price ($/Mt) Komatsu Sales (Unit) 2,181 3,788 4,800 5,040 5,292 PAMA Coal Production (Mn Tons) PAMA Overburden Removal (Mn Tons) ,023.2 TTM Coal Production (Mn Tons) Acset Indonusa - New Contract (IDR Bn) 3,773 8,441 8,500 8,500 8,500 Acset Indonusa - Burn Rate (%) 43% 41% 30% 30% 30% FFB Production (Tons) 3,726,091 3,941,618 4,225,421 4,432,319 4,432,319 FFB Yield (Tons/Ha) CPO Production (Tons) 1,554,135 1,633,806 1,879,827 1,909,767 1,909,767 CPO Extraction Rate (%) CPO Sales (Tons) 1,013,965 1,260,530 1,447,467 1,470,520 1,470,520 CPO ASP (IDR/kg) 7,739 8,332 7,917 8,092 8,092 Ratios E 2019F 2020F Profitability Return on Asset (%) Return on Equity (%) Gross Margin (%) Operating Margin (%) EBITDA Margin (%) Net Margin (%) Liquidity Current Ratio (X) Quick Ratio (X) Solvency Debt/Equity (X) Debt/Assets (X) Valuations P/E (X) P/BV (X) Source: Company Data, Sinarmas Investment Research 4 Automotive Sector - ASII 31 October 2018

5 SINARMAS SEKURITAS INVESTMENT RATINGS GUIDE BUY: Share price may rise by more than 15% over the next 12 months. ADD: Share price may range between 10% to 15% over the next 12 months. NEUTRAL: Share price may range between 10% to +10% over the next 12 months. REDUCE: Share price may range between 10% to 15% over the next 12 months. SELL: Share price may fall by more than 15% over the next 12 months. DISCLAIMER This report has been prepared by PT Sinarmas Sekuritas, an affiliate of Sinarmas Group. This material is: (i) created based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such; (ii) for your private information, and we are not soliciting any action based upon it; (iii) not to be construed as an offer to sell or a solicitation of an offer to buy any security. Opinions expressed are current opinions as of original publication date appearing on this material and the information, including the opinions contained herein, is subjected to change without notice. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this publication may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, integrating and interpreting market information. Research will initiate, update and cease coverage solely at the discretion of Sinarmas Research department. If and as applicable, Sinarmas Sekuritas investment banking relationships, investment banking and non-investment banking compensation and securities ownership, if any, are specified in disclaimers and related disclosures in this report. In addition, other members of Sinarmas Group may from time to time perform investment banking or other services (including acting as advisor, manager or lender) for, or solicit investment banking or other business from companies under our research coverage. Further, the Sinarmas Group, and/or its officers, directors and employees, including persons, without limitation, involved in the preparation or issuance of this material may, to the extent permitted by law and/or regulation, have long or short positions in, and buy or sell, the securities (including ownership by Sinarmas Group), or derivatives (including options) thereof, of companies under our coverage, or related securities or derivatives. In addition, the Sinarmas Group, including Sinarmas Sekuritas, may act as market maker and principal, willing to buy and sell certain of the securities of companies under our coverage. Further, the Sinarmas Group may buy and sell certain of the securities of companies under our coverage, as agent for its clients. Investors should consider this report as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Recipients should not regard this report as substitute for exercise of their own judgment. Past performance is not necessarily a guide to future performance. The value of any investments may go down as well as up and you may not get back the full amount invested. Sinarmas Sekuritas specifically prohibits the redistribution of this material in whole or in part without the written permission of Sinarmas Sekuritas and Sinarmas Sekuritas accepts no liability whatsoever for the actions of third parties in this respect. If publication has been distributed by electronic transmission, such as , then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this publication, which may arise as a result of electronic transmission. If verification is required, please request a hard-copy version. Additional information is available upon request. Images may depict objects or elements which are protected by third party copyright, trademarks and other intellectual properties. Sinarmas Sekuritas(2018). All rights reserved. 5 Automotive Sector - ASII 31 October 2018