Company update:
AKR Corporindo (AKRA IJ, BUY, TP: IDR7,500),
Trimming Estimates But Outlook Still Buoyant
AKR Corporindo (AKRA IJ, BUY, TP: IDR7,500),
Trimming Estimates But Outlook Still Buoyant
We trim FY16F-17F
earnings by 15%/8% on AKR’s soft fuel sales volume in 2Q16-3Q16. However, we
remain positive on prospects in FY17 due to:
1. The increasing volume of sales to the
coal mining sector in tandem with the recovery of thermal coal prices;
2. Ramping up of RON92 gasoline sales
volume;
3. The completion of electricity and
water treatment facilities in JIIPE, which will drive land sales;
4. A potential land deal with
Freeport-McMoRan.
Maintain BUY, while we roll over our
valuation basis to FY17. Our lower SOP TP of IDR7,500 (from IDR8,000, 13%
upside) reflects 22x FY17F P/E.
¨
Lower
fuel sales volume for FY16.AKR Corporindo’s (AKR) management shared that 3Q16 fuel
distribution volume will be soft and similar to that of 2Q16. It also cut its
FY16 distribution growth target to flat from 5-8%, mainly due to lower take-up
rates from the power and coal mining sectors. However, demand from the mining
sector will likely pick up from 4Q16 due to higher coal prices. Only 28% of
AKR’s petrol stations were selling RON92 gasoline as of September. It targets
to sell this product at all stations by end-FY16.
¨
Industrial
estate progressing slowly. As of YTD-Sep, AKR sold 15ha of industrial land (FY14-15:
27 ha), which does not imply substantial growth. However, Java Integrated
Industrial and Port Estate’s (JIIPE) first 23MW power plant is under
construction and slated to begin commercial operations by 2Q17, while its first
water treatment plant will also commence operating by 1Q17. This should
increase JIIPE’s appeal to investors and drive land sales. On another note, the
yearly ASP has increased to USD180/ha from USD150/ha.
¨
Negatives
appear to be priced in. The lower sales volume looks to be priced in by the
market, as evidenced by the consensus estimate being lower than our current
projections (post 2Q16 results). As we revised our numbers downwards, our
FY16F-17F earnings are now closer to that of the consensus. In addition, the
negative sentiment on the bad debts from the coal mining sector seems to have
faded with the recovery of thermal coal prices,
¨
Upside
surprise from Freeport-McMoRan land deal? Freeport McMoRan’s copper export
permit will expire in Jan 2017 and its renewal will depend on its investment in
its smelter in East Java (which is likely to be located in JIIPE).Due to the
low completion rate of smelters in the country, acting Minister of Energy and
Mineral Resources Luhut Pandjaitan has announced the Government will relax the
complete ban on raw ore exports from 2017 onwards. Meanwhile, we believe the
Government will still pursue a more concrete commitment of a smelter investment
by Freeport McMoRan in upcoming negotiations to renew the latter’s licence.
This is a potential catalyst that will boost AKR’s earnings by c.25% in the
event of a cash sale. It is not included in our forecast nor priced in by the
market, in our opinion. Downside risks to our call are credit risks and
lower-than-expected sales volumes in FY17.
Kindly click the following link for the full report: AKR Corporindo : Trimming Estimates But Outlook Still Buoyant
Best regards,
Kindly click the following link for the full report: AKR Corporindo : Trimming Estimates But Outlook Still Buoyant
Best regards,
Norman Choong, CFA
Assistant Vice
President
Research Analyst – Utilities,
Oil & Gas, Poultry
PT. RHB Securities
Indonesia
