Record 1H and the margin drag should reverse

AUTO delivered a record first-half results for 2026. Net profit of IDR592bn in 2Q26 (+37% yoy), underpinned by 2Q26 revenue of IDR5,596bn (+19% yoy), led to 1H26 profit of IDR1,151bn (+23% yoy) — the highest first-half in the company’s history, with 1H26 revenue of IDR10.9tn (+13% yoy). The one soft spot, manufacturing margin, is in our view temporary and close to an inflection point, and we expect it to recover from late-3Q26 into 4Q26, suggesting 2Q26 would be the trough and leaves risk to our FY26F manufacturing margin skewed to the upside.

Manufacturing — volumes accelerated, margin took the raw material hit

Manufacturing revenue rose +20% yoy to IDR3,215bn in 2Q26, a clear acceleration from the mid-single-digit growth of recent quarters, on higher OEM offtake in both 2W and 4W. For 1H26, manufacturing revenue reached IDR6,281bn (+12% yoy). Segment GPM came in at 6.5% in 2Q26 versus 8.1% in 1Q26 and 7.1% in 2Q25. We attribute this to raw material cost inflation and a weaker IDR running ahead of price pass-through.

Pass-through is incomplete and aluminum has already turned

The cost picture is more constructive than the headline margin implies. Steel-based components have already been repriced, but the adjustment has not yet fully covered the increase because steel prices kept trending upwards through the adjustment window. Plastic-based items have yet to be repriced and remain the outstanding item. Aluminum prices have now come off their peak. With pass-through still catching up and one of the three main inputs currently deflating, we see manufacturing GPM recovering from late 3Q26 into 4Q26. This is the single most important swing factor for AUTO’s 2H26 earnings.

Associates and trading carried the quarter

Associates’ income rose +54% yoy to IDR328bn in 2Q26, taking 1H26 to IDR619bn (+32% yoy). The IDR151bn yoy increase was driven by AUTO’s largest associates on higher sales volumes and better profitability, with a contribution from exports as well. With domestic 2W and 4W demand recovering alongside a growing export book, we expect these joint ventures to remain the swing factor for group earnings.

Valuation and risks

We maintain Buy and our TP of IDR3,300, based on a target FY26F P/E of 7.0x applied to our FY26F. The balance sheet continues to support the total shareholder return case, with net cash of IDR3,706bn in 2Q26 (net gearing of -0.22x) against IDR3,171bn a year ago. TTM ROE was up to 14.1% in 2Q26 from 12.4% in 2Q25. Downside risks are: 1) a slowdown in trading operations, 2) weak income from associates, and 3) heightened competition.

Fig. 1: AUTO IJ 1H26 results - Volume did the work

AUTO IJ (IDRbn)	1Q25	2Q25	1Q26	2Q26	y-y%	q-q%	1H25	1H26	y-y%	% Ours	% Cons
Revenue	4,894	4,689	5,257	5,596	19%	6.4%	9,583	10,853	13%	52%	52%
Trading	2,349	2,419	2,643	2,819	17%	6.7%	4,768	5,461	15%
Manufacturing	2,924	2,686	3,066	3,215	20%	4.9%	5,610	6,281	12%
Elimination	(378)	(416)	(452)	(438)	5.2%	-3.0%	(795)	(890)	12%
GP	796	735	842	846	15%	0.5%	1,531	1,688	10%	49%	48%
Trading	550	576	626	671	17%	7.2%	1,126	1,297	15%
Manufacturing	271	191	250	209	9.1%	-16%	463	458	-0.9%
Elimination	(25)	(32)	(34)	(34)	4.0%	-0.6%	(58)	(67)	17%
Associates' income	256	213	291	328	54%	13%	468	619	32%
EBIT	304	237	311	277	17%	-11%	541	588	8.6%	48%	44%
EBITDA	443	375	451	420	12%	-7.0%	818	871	6.6%	47%	46%
NPAT	506	433	559	592	37%	6.0%	939	1,151	23%	50%	49%
Core Earnings	506	433	559	592	37%	6.0%	939	1,151	23%	50%	49%
Margins %	1Q25	2Q25	1Q26	2Q26			1H25	1H26
GP	16%	16%	16%	15%			16%	16%
Trading	23%	24%	24%	24%			24%	24%
Manufacturing	9.3%	7.1%	8.1%	6.5%			8.2%	7.3%
EBIT	6.2%	5.0%	5.9%	5.0%			5.6%	5.4%
EBITDA	9.1%	8.0%	8.6%	7.5%			8.5%	8.0%
Core earnings margin	10%	9.2%	11%	11%			10%	11%
Bal. sheet Rp bn	1Q25	2Q25	1Q26	2Q26
Cash	3,865	3,837	4,809	4,296
Debt	661	666	580	590
Net debt (cash)	(3,205)	(3,171)	(4,228)	(3,706)
Equity	16,132	15,849	17,490	17,195
Net gearing (x)	(0.20x)	(0.20x)	(0.24x)	(0.22x)
ROE TTM%	12.8%	12.4%	12.9%	14.1%

 

Fig. 2: Best first-half results in AUTO's history, structural step-up since 1H22

 

Fig. 3: Top line at record highs, manufacturing margin at the bottom of its range

 

Fig. 4: ROE breaks out of its three-year 12% to 13% ceiling

 

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Jupriadi Tan (jupriadi.tan@verdhana.id)

David Tjahjadi (david.tjahjadi@verdhana.id)

Gerald Hugo (gerald.hugo@verdhana.id)