Astra Int'l – Price target IDR 87,250

Negative headwinds from fuel price hike
Price hike for subsidized fuel
On the back of rising global oil price reaching >US$120/bbl, the government is looking to hike subsidized fuel price on 1 April (subject to parliament's approval on 28 February) in a bid to avoid exceeding the maximum threshold of -3% of GDP as prescribed by the law. Our base case for subsidized fuel price hike is Rp1,500/liter (+33%) across the board. Consequently, BI expect
the inflation could reach 7% post this price hike.

Economy fundamentals remain intact
We expect the implementation of fuel price hike would hurt the market sentiment in the short-term, however, we continue to believe that economy fundamentals remain intact. This is predicated upon the economy is now much better positioned to absorb a higher fuel price - 1) the economy has more than doubled with GDP per capita at US$3,500 in 2011 vs. US$1,300 in 2005, 2) FX reserves quadrupled to US$112bn, 3) 12% p.a. wage increase and declining unemployment from 11% in 2005 to 6.5% today, and 4) companies' earnings have generally more than doubled.

Temporary weakness, Reiterate Buy on Astra Int'l
We expect only temporary weakness on automotive sales following the implementation of this fuel price hike given strong underlying demand for private vehicles coupled with unwavering economic activities and credit availability. Moreover, we believe Astra could benefit from downtrading in car purchases like in 2006 and 2009 as its Toyota Avanza/Daihatsu Xenia and Toyota Kijang offer excellent value for money - 7-seater MPV with high resale value. Indeed, the fuel price have increased by 200% on average since 2005, but at the same time, Astra's automotive EBIT increased by threefold with car sales almost tripled and motorcycle sales doubled. Overall, we see this negative headwinds to hurt sentiment toward the stock in the near term, however, we maintain our upbeat view on the long-term outlook of Astra Int'l.

Source: Deutsche Bank dated 24 February 2012