RHB Indonesia - AKR Corporindo: Company Meeting Key Takeaways - 10 January 2017 - (AKR Corporindo) Unknown Selasa, 10 Januari 2017


Good morning,

AKR Corporindo: Company Meeting Key Takeaways

We’ve met with AKR Corporindo (AKRA IJ, BUY, TP: IDR7,500) last week on business update, results preview and to ask reasons behind its recent share price correction. Key Point from the meeting;
i. Indicative full year FY16F result is expected to be relatively flat YoY and in-line with consensus (IDR1.089 tril), 5% below our estimate. This is on the back of 5% lower petroleum volume distributed and slight lower margin/litre due to 1Q16’s bad result.

ii. Share price has corrected >15% since 3 weeks ago due to a Chinese individual, not fund, hinted it to be family office. cleaning off his holding in AKRA, it is already finished.
iii. Company targeted FY17F net profit of IDR1.3trn, about 20% EPS growth in FY17F due mainly to higher sales volume to coal mining sector, higher sales volume in retail distribution, and higher margin/litre, similar to FY15F. However, guidance to analyst is only 15% YoY, to be conservative.
iv. Interesting update with the JV with BP (50.01% AKRA, 49.99% BP), BP doesn’t have distribution network, AKRA doesn’t have good brand, hence the JV.
¨ Two key points on the JV, consumption pattern of gasoline has changed, bulk of RON88 Premium users have switched to Pertalite and Pertamax, this JV aims to penetrate big cities such as Jakarta and Surabaya since non subsidised gasoline segment has technically becomes a free market. This JV has a target to generate USD100mn of net profit p.a. in the next 5 years, after taking off BP’s share of profit it will be about half of AKRA current net profit.
¨ The JV also aims to penetrate Indonesia aviation fuel market, currently 100% owned by Pertamina, with the fuel supplied by BP, 10% of total fuel demand of Indonesia, a lucrative market nonetheless but we think this is easier said than done due to the bureaucracies involved.
¨ We have a Buy on AKRA with TP of IDR7,500, it is currently trading at 18.0x FY17F PER, not cheap on 1 year investment horizon but attractive if looking at 5 years ahead and the company’s execution track record, potential catalyst would be better FY17F result and Freeport land deal, which is a matter of time, according to AKRA. (Norman Choong, CFA)

Figure: Shift in fuel consumption (total national sales)
Source: Company, RHB
Link to daily report: Indonesia Morning Cuppa - 100117


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KPPU suspected Yamaha Indonesia and Astra Honda did a cartel business
Yesterday, the Indonesia Business Competition Supervisory Commission (KPPU) announced its investigation result that Yamaha Indonesia Motor Manufacturing (YIMM) and Astra Honda Motor (AHM) are suspected of cartel practice. KPPU said that the two motorcycles makers have made "unwritten agreement" to control scooter's selling price in 2014.
On our discussion with Astra International (ASII IJ, BUY, TP: IDR9,250), the management admitted that its subsidiary AHM has receipt letter from KPPU on the above case. Astra management can not give further comment as the case is still under legal proceeding
Based on our conversation to KPPU official, within 14 days, YIMM and AHM are given opportunity to sent their objection on the above KPPU investigation result via legal court. We see that the legal court process will likely to take longer-time since Yamaha and Honda would like to proof that they do their business fairly.
While waiting the legal court process, we maintain BUY on Astra International with DCF TP of IDR9,250 (13% upside) as we believe this case will have limited impact on Astra overall performance. (Andrey Wijaya)
KPPU recomendation:
1. YIMM and AHM have been proven legally in violating Article 5, paragraph 1 of Law number 5/1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition.
2. Punish YIMM and AHM pursuant to Article 47 , namely the administrative sanction, one of which contains the imposition of fines as low as IDR1bn and a maximum of IDR25bn.
3. Prohibit YIMM and AHM to set future “on the road” selling price as a reference price for the consumer.
4. Prohibit the automotive company to provide the reference price to the dealer and include the price of transfer duties (BBN) as it is not a component of the benchmark price of the manufacturer.
5. BBN prices and fees which are imposed by the state are solely paid on the basis of consumer choice, whether to pay themselves or through dealers.

According to the legal team Honda, the sequence of events that built by KPPU investigator team on the investigation conclusion is inappropriate. Honda's legal team claimed five-point finding of the substantive aspects:
1. There is no agreement between the YIMM and AHM on setting the selling price of scooter products
2. Unclear definition of the relevant market by KPPU
3. There is no evidence for direct communication for price fixing cartel by YIMM and AHM.
4. There is no economic motive for Honda to do fixed pricing
5. The structure of the scooter market is oligopolistic that will lead to more healthy competitive landscape.

Ramayana to open six new stores in 2017
In order to maintain business performance, Ramayana Lestari Sentosa (RALS IJ, Under Review) will keep expanding this year. The company plans to open six new stores along 2017 period and has prepared capex of IDR400bn for the expansion plan. However, the company has not given any details regarding location of the new stores. Moreover, the company targets its revenue to grow by 10% in 2017, where existing stores are expected to contribute by 8%, while the six new stores are expected to contribute by 2%. (Kontan)

Comment: Six stores addition will be RALS’ most aggressive expansion since 2014, suggesting management rather upbeat mood. This store rollout acceleration come at the right time after RALS’ positive momentum on sales and financial performances. (Stifanus Sulistyo)

Summarecon aims marketing sales of IDR4.5trn in 2017
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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia

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