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stra Otoparts expects to halve its capital expenditure (capex) next year owing to a slow automotive market that has dragged down the company'€™s growth and capital absorption this year.

The firm'€™s chief financial officer, Hugeng Gozali, said over the weekend that his company planned to allocate capex of Rp 1.5 trillion (US$109.1 million) to Rp 2 trillion next year, nearly 50 percent less than this year'€™s revised capex of Rp 3 trillion.

Initially, Astra Otoparts planned to spend Rp 4 trillion in capex this year. However, lower-than-expected demands in the automotive sector forced the firm to lower it. So far, capex absorption has reached only 60 percent, Hugeng said.

'€œCapex for capacity expansion will be almost none or very selectively allocated,'€ he said on Friday.

Hugeng said the funds would mostly be used to strengthen the company'€™s distribution chain and exports as it saw potential growth in overseas markets.

Company data shows that exports accounted for 10.3 percent of Astra Otoparts'€™ total sales in the first nine months of this year, higher than in the same period last year, which stood at 8.8 percent.

The publicly listed company booked Rp 8.67 trillion in revenues as of September, 5.56 percent lower year-on-year (yoy) than the Rp 9.18 trillion it reaped last year.

Despite its cost of goods sold, which was down 5 percent yoy to Rp 7.40 trillion, the company saw its net profits plummet more than 70 percent yoy to Rp 179 billion.

Hugeng attributed the steep decline in net profits to higher operating costs due to a 17 percent hike in minimum wages at the production level this year.

Workers'€™ wages weighed in at 10 percent of auto-components'€™ prices, quite high considering the materials portion reached 50 percent of the prices, Hugeng said.

'€œIf wages go up another 15 to 17 percent next year while we can'€™t increase the components'€™ prices due to weak demand, our margins will be eroded further,'€ he said, adding that currently the margins had shrunk following the weaker rupiah, slow demand for vehicles and higher shop rentals.

The rupiah lost around 16 percent of its value from January to September this year. It closed the day on Friday at Rp 13,801 per US dollar, 0.43 percent weaker than its previous close at 13,742, according to Bloomberg data.

Meanwhile, car and motorcycle sales dropped 18 percent and 20 percent, respectively, in the first nine months of the year.

Hugeng said that in response to the condition, his firm would shift its capex utilization focus to capability improvement through production automation.

He claimed that automation could accelerate production, reduce overtime and maintain product quality so that rejected components would be fewer.

'€œThis [automation] has a significant connection to lower production costs per unit,'€ he said.

Astra Otoparts will also strengthen its distribution and retail chains to maintain its share amid slow market conditions.

The company, which produces components for both retail and motor vehicle manufacturers, has more than 12,000 local independent retailers and 359 modern auto-parts shops nationwide.

It also distributes components to dozens of countries in North and South America, Europe, Africa, the Middle East, Australia and Asia.