• Keep BUY and IDR2,800 TP (27% upside), c.5% FY25F yield. Astra Otoparts has started discussions with Chinese EV manufacturer BYD for a potential collaboration in Indonesia’s xEV segment. We note that domestic EV manufacturers will need to comply with increased minimum local content requirements over the next few years. Meanwhile, the company expects continued solid revenue from its trading segment. We believe AUTO’s strong balance sheet (FY24-25F net cash) will be able to support dividends. The stock is trading at 5.9-5.6x 2024-2025F P/E (-1SD from its 3-year mean).

• New opportunity in xEV segment. AUTO, in the Public Expose event held last Friday, revealed that it has started discussions on a potential collaboration with BYD, with further details yet to be disclosed. We believe AUTO, as one of Indonesia’s leading auto part manufacturers, has the capability and agility to keep up with the growing demand in Indonesia’s xEV segment. It is currently also collaborating with Wuling Indonesia for the supply of wheelbases and GS batteries for its EV vehicles. As for BYD Indonesia, its factory is expected to begin operations in 2026. While we expect minimal local content during the early stages of production, we note that EV manufacturers will have to comply with regulations to meet minimum local content of 40% in 2022-2026, 60% in 2027-2029, and 80% from 2030 onwards, based on PP 79/2023 (presidential decree).

• Trading revenue is expected to remain solid in 3Q24 as demand from the replacement market is still growing. We expect AUTO to be able to maintain its average monthly trading revenue of IDR800bn in Jul-Aug 2024 (10-15% above FY23’s average monthly trading revenue of IDR700bn). Even with a conservative contribution assumption for September, we believe trading revenue in 9M24F could reach IDR6.9trn (+8.4% YoY), at 82% of our FY24 estimates.

• Risks: Lower-than-expected domestic auto sales volumes, higher-than- expected raw material costs, and changes in government regulations.

• Valuation. Our TP implies 7x FY25F P/E, at its 3-year mean, and includes a 0% ESG premium/discount as AUTO's 3.0 ESG score is in line with the country median.

Source: RHB Research - 2 Sep 2024