Car sales of Astra International, the main contributor to the company's earnings, stood at 127,263 vehicles in the first quarter of 2016, down 7.2 percent (y/y) from 137,209 sold vehicles in Q1-2015 and it remains doubtful whether demand for cars can grow in the remainder of 2016. It may require a real rebound in commodity prices as well as further accelerating economic growth before Indonesia's car sales will grow again. In line with easing economic growth, Indonesia's car sales fell in the years 2013-2015 due to subdued purchasing power and weakening consumer confidence.

If car sales in Indonesia are able to rise again this year (supported by accelerating economic growth, rising purchasing power, cheaper lending rates, and the launch of new products) then there remains the problem that Astra International's profit margin (in the automotive segment) has been on the decline due to restructuring related to its Toyota sales. CIMB Securities has therefore cut its forecast for Astra's net profit in the 2016-2018 period. The securities company also revised down the company's car sales from 601,489 units to 567,577 units in 2016 (implying that Astra International's market share in the automotive sector falls from 53 percent to 50 percent).

Future Projection Financial Performance Astra International:

    2015F   2016F   2017F   2018F
Net Revenue 184,196 194,090 212,090 231,368
EBITDA  24,494  27,425  30,661  36,207
Net Profit  14,464  18,063  20,702  24,767
P/E Ratio (x)    20.2    16.1    14.1    11.8

in billion of IDR rupiah, unless stated otherwise
Source: CIMB Securities (14/05/2016)

Astra International's shares came under severe pressure after the company released its first quarter corporate earnings report late last month. The company posted a 22 percent (y/y) decline in net profit to IDR 3.11 trillion in Q1-2016, while its revenue fell 7 percent (y/y) to IDR 41.89 trillion. Its EBITDA tumbled 9.1 percent to IDR 3.37 trillion. As a result, Astra International's shares fell from a recent peak of IDR 7,575 a piece (21 April 2016) to IDR 6,200 per share (16 May 2016), an 18 percent drop.

Astra International's automotive segment is expected to remain bleak. However, there are positive forecasts regarding the company's agribusiness segment, multi-finance segment, and infrastructure segment.

Demand for loans (for the purpose of financing a car or motorcycle purchase) is expected to rise as CIMB Securities believes that the total of car and motorcycle sales can grow in the period ahead, partly supported by the lower benchmark interest rate of Indonesia (Bank Indonesia cut its benchmark BI rate from 7.50 percent at the start of 2016 to 6.75 percent in March).

Regarding the agribusiness segment, there is optimism that the higher palm oil price (touching a 17-month high) contributes to higher earnings of palm oil unit Astra Agro Lestari. In Q1-2016, the palm oil unit posted a staggering 168 percent (y/y) growth in net profit to IDR 418 billion. The Astra International management said this rise was caused by profit obtained from the appreciating rupiah exchange rate toward its US dollar-denominated monetary liabilities.

However, Astra's financial services segment - mainly conducted through subsidiary Bank Permata - is plagued by an expected increase in its non-performing loan ratio. Meanwhile, with the coal industry still struggling to survive, Astra's earnings in the coal mining sector are expected to remain bleak, while sales of heavy equipment unit United Tractors remain under pressure.