Company update:
Astra Agro Lestari (AALI IJ, BUY, TP: IDR19,700)
Sizable Earnings Recovery Ahead
Astra Agro Lestari (AALI IJ, BUY, TP: IDR19,700)
Sizable Earnings Recovery Ahead
We
think consensus has still not factored in Astra Agro’s sizable FY17F earnings
recovery – as a result of a production recovery and higher FY17 domestic CPO
prices. The price has surpassed IDR10,000/kg (up+44.8%YTD) in December and the
company, in turn, has booked a positive YoY monthly production growth since
September. These factors should make it book sizable earnings recovery from
4Q16. The current weakening IDRhas also improved earnings. We fine-tune our
assumptions and reiterate our BUY call with a higher IDR19,700 TP (from
IDR17,400).
¨ Sizable earnings
recovery from4Q16. This
is on the back of:
i. Sizable palm oil production recovery since
September, as Astra Agro Lestari (Astra Agro) has started to book positive YoY
growth monthly production(Figure 3);
ii. An upcycle in domestic CPO price (Figure 1) –
we think Astra Agro should book a sizable earnings recovery from 4Q16 onwards
and right through to FY17.
¨ CPO price to continue
strengthening until 1Q17. Domestic CPO selling price surpassed IDR10,000/kg (+44.8%
YTD) in December (Figure 1). We think domestic CPO price ought to continue to
stay at a high level until 1Q17 due to the low palm oil inventory levels and
weakening IDR. Every IDR100 increase in domestic CPO price – from our base
FY17F domestic CPO price of IDR8,180/kg vs the current domestic CPO price of
IDR10,155/kg – would see Astra Agro’s earnings increase by 3.4%.
¨ The beneficiary of a
weakening IDR. We
forecast that the IDR should continue its weakening trend vs the USD to
IDR13,700 in FY17 (vs the IDR13,301 average YTD). This should improve Astra
Agro’s FY17F earnings, as its CPO selling price is linked to the USD. We opine
that every IDR100 depreciation against the USD should see Astra Agro’s earnings
increase by 2%.
¨ Palm oil production has already recovered since September. Unlike Malaysia CPO
monthly production – which is still booking negative YoY growth (Figure 2) –
Astra Agro’s CPO production has started to book production recovery since
September with positive YoY growth (Figure 3). We estimate its FY17 CPO
production to grow by 10.1%YoY.
¨ Healthier balance
sheet, net gearing keeps decreasing. Post rights issue in mid-2016,wethink Astra
Agro’s net gearing should keep decreasing. This is due to the lesser capex
requirement as a result of the “no new plantings” policy.
¨ Reiterate BUY with higher IDR19,700 TP (from
IDR17,400). We
fine-tune our assumptions in order to factor in a weaker IDR and higher palm
oil production by increasing FY17-18 earnings by 13.5% and 6.1% respectively.
Our IDR19,700 TP is based on an unchanged P/E target of 16.5x. Our TP implies
EV/ha of USD12,791, ie within the range of the EV/ha of regional listed
planters. The key risk to our call is a weakening CPO price from the current
strengthening price trend.
Kindly click the following link for the full report: Astra Agro Lestari: Sizable Earnings Recovery Ahead
Hariyanto Wijaya,
CFA, CFP, CA, CPA
Vice President
Research Analyst – Heavy
Equipment, Plantation
PT. RHB Securities
Indonesia
