Wolf Money(PT Astra International Tbk)

 

First time for Lone Wolf Fund. I did my first direct purchase of an Indonesia stock listed on IDX composite. It comes after the comments made by various stakeholders on our stock market. It seems no one is interested in reviving the Singapore market. It was shocking to hear from Temasek, the Singapore market has nothing to do with them. It calls into question where their priority lies given their role as an implied custodian of the Singapore stock market due to their huge holdings in TLC in SGX. Anyway enough said.

(Image credit : The Edge Singapore)

Back to Astra International, it is one of the biggest company in Indonesia with businesses across different industries from automotive distribution to coal mining. I had a look at the financial statement. I find it rare to have an Indonesian company in net cash position. My impression of many Indonesian companies tend to have a fair amount of borrowing given the depreciating currency. 

(Steady growth at Astra International)

The stock had gone through a big round of correction over the past year, dropping more than 30% in the process. The company is trading at less than 6x p/e with a 11% yield on the stock. The 11% yield seems high by Singapore standard but given the higher risk free and 7% borrowing rates in Indonesia, the high yield is justified in my opinion. I am taking a small position in Astra International to have a feel of the Indonesia market. Jardine C&C is a 50.1% shareholder of Astra Int’l. The tough operating conditions at other Jardine Matheson Holdings units has made Astra the top contributor to JMH bottomline. Astra has become an important business unit of JMH. I have no doubt the high dividend will continue to boost the cash level at JMH for other deployment needs. The company has been growing steadily over the last few years, paying out 63% of their earnings. It’s strong competitive advantage comes from being the largest car distributor in Indonesia with more than 50% market share. 1 in 2 cars and 3 in 4 motorcycles sold in Indonesia were sold by Astra International. 

The company has recently acquired an Australian nickel mining company. Nickel is one of the most important minerals for ev batteries production. Astra’s profitability also depends on the price of coal. Other major contributors of profit are from the sales and servicing of heavy mining and construction machineries. Consumer financing and insurance sale also contributes to their profitability.

Major risks include the depreciating Indonesia rupiah and poor consumer confidence. The Rupiah has been sliding against the Singapore dollar since 2020 from IDR 10,000 to IDR 12,000. There is a reported slowdown in vehicle sales and lower coal price. Astra International has their fortune tied up to the Indonesia economy. I have a more favourable out look for ASEAN’s economy. Given Indonesia is the largest economy in South East Asia, it should benefit from the inflow of foreign direct investment into ASEAN. The country growth rate has surpassed China’s growth. Astra International is one of the largest company in Indonesia which will benefit from the current uptick in the Indonesia economy. The company is forecasting a drop in sales this year. They will be reporting their 1H24 by end July. Major support can be seen at IDR 4300.

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