AALI Reliance upon Rebound in CPO Prices 20180517 NHKS Company Report (English)

• –term oversupply in markets.

• – year average of 14.3x) to obtain the target price of December 2018. The target price implies a 2018E P/E of 14.7x. AALI is currently traded at a 2018E P/E of 11.9x.
• 62 21 797 6202, ext:138

  BVPS (IDR) 9,141 9,631 10,225 10,882 EBITDA margin 26.4% 24.5% 22.3% 22.2% NPM 14.2% 11.6% 10.1% 10.1% ROE 13.7% 11.1% 10.2% 10.6% ROA 8.8% 8.2% 7.6% 8.0% ROIC 9.3% 8.9% 8.2% 8.7% P/E 16.1x 12.6x 11.9x 10.8x P/BV 1.8x 1.4x 1.2x 1.1x EV/EBITDA 9.7x 6.9x 6.4x 5.7x DPS (IDR) 469 448 454 502

  EPS growth 224.2% 0.2% -3.3% 10.4%

  EBITDA 3,728 4,240 4,287 4,698 Net profit 2,007 2,010 1,943 2,145 EPS (IDR) 1,043 1,044 1,010 1,115

  Sales growth 8.1% 22.5% 11.3% 10.1%

  Sales 14,121 17,306 19,264 21,209

  2016/12A 2017/12A 2018/12E 2019/12E

  Target Price IDR14,800 We use an estimate of forward P/E of 13.3x (1 SD lower than the last 2

  Oil Palm Moratorium Curbing Oversupply In long terms, CPO prices are likely supported by the lagging growth in production attributable to the moderate activities of new farming. The moratorium on new oil palm farming curbs the long

  CPO Price: Determinant of AALI’s Performance AALI’s performance is reliant upon CPO prices in markets. We oversee that CPO prices currently settle at its support level since 2016; thus, the decline in CPO prices are likely limited. Additionally, the current backdrop is also underpinned by the decrease in Malaysia’s CPO inventories coupled with the downbeat production. The stable demand for CPO inevitably spurs rebound in CPO prices and underpins AALI’s performance in ahead years.

  1Q17 into IDR355 in 1Q18. The tumble was attributable to the plunge in gross profit margin from 31% 1Q17 into 17% 1Q18. The portion of production costs experienced no significant surge as it only nudged up 2%. In 1Q17, its portion to sales was 76%, and nudged up 2% into 78% in 1Q18. The decline in net profit was mainly attributable to the hike of 12% in finished good inventory portion to sales.

  1Q18. Nevertheless, its net profit tumbled 55% from IDR801 billion in

  1Q18’s Less Stellar Performance AALI’s sales whittled away 1% from IDR4.49 trillion in 1Q17 into IDR4.44 in

  Abs. Ret. -8.7% -12.7% -10.3% -18.1% Rel. Ret. -0.6% -5.8% 1.2% -20.7%

  12M

  3M

  1M

  Share Price Performance YTD

  Astra Agro Lestari Tbk | Summary (IDR bn) Source: Company Data, Bloomberg, NHKS Research

  joni.wintarja@nhsec.co.id

  Agriculture Crude Palm Oil Bloomberg AALI.IJ Reuters AALI.JK Joni Wintarja

  16.15 Foreign Ownership 5.3%

  1.17 Avg. Trd Val - 3M (bn)

  20.3 Outstanding sh.(mn) 1,925 Market Cap (IDR bn) 23,240 Market Cap (USD mn) 1,656 Avg. Trd Vol - 3M (mn)

  Last Price (IDR) 12,000 Price date as of May 15, 2018 52 wk range (Hi/Lo) 15,500/11,700 Free float (%)

  Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia Company Report | May 17, 2018 Astra Agro Lestari Tbk (AALI) Reliance upon Rebound in CPO Prices Buy Dec 2018 TP (IDR) 14,800 Consensus Price (IDR) 15,438 TP to Consensus Price -4.13% vs. Last Price +23.33% Shares data

  Dividend yield 2.8% 3.4% 3.8% 4.2%

  A Glance at AALI AALI, a merger among companies in the initial stage, started to develop agriculture industry in Indonesia since 1988. Having best management practice, AALI becomes one of the biggest oil palm agriculture companies in Indonesia. In the late of 2016, it managed the oil palm plantations with the total areas of 297,011 hectares situated in Sumatra, Kalimantan, and Sulawesi Islands.

  It not only manages oil palm agriculture but also develops downstream industry with a view to maintaining its business sustainability. Its attempts to maintain business sustainability are embodied in the operation of oil refiners in North Mamuju Regency of West Sulawesi Province, and Dumai in Riau Province. In 2016, it operated a fertilizer mixing plant in Donggala Regency of Central Sulawesi Province, and developed the integrated business of oil palm-and cow farm in West Kotawaringin Regency of Center Kalimantan Province.

  CPO Industry in ASEAN Having oil palm production capacity of 38.5 million tons, Indonesia is the world’s biggest oil palm producer. Malaysia is the world’s second-biggest oil palm producer with the production capacity of 20.5 million tons. The two countries virtually dominate 84% of the total world’s oil palm production. Meanwhile, Thailand is world’s third-biggest oil palm

producer with the production capacity of 2.7 million tons.

  AALI has the third highest dividend yield of 3.8% amongst its peers in ASEAN. The fundamental factors it has such as ROE above 10% and low valuation of 11.9x make it as t stock pick in ASEAN.

  ASEAN CPO Plantation Company Market Cap Total Asset Net Profit Net Profit Dividend Company ROE P/E P/BV (USD mn) (USD mn) Growth Margin Yield

  AALI 1,656 1,835 -3.3% 10.1% 10.2% 11.9x 1.2x 3.8% LSIP 542 717 -16.0% 15.8% 7.7% 11.7x 0.9x 4.1%

  Malaysia

  Genting Plantations Bhd 2,066 2,085 -3.3% 18.7% 7.7% 23.1x 1.9x 1.3% Kuala Lumpur Kepong Bhd 6,914 4,619 -16.6% 4.8% 8.5% 28.0x 2.3x 2.0%

  IOI Corp Bhd 7,711 4,193 99.6% 5.3% 20.8% 20.3x 4.7x 2.0%

  Singapore

  Wilmar International Ltd 15,308 40,933 25.4% 2.8% 8.0% 12.5x 1.0x 2.2% Golden Agri-Resources Ltd 3,489 8,138 -81.5% 1.0% 1.8% 48.1x 0.9x 3.9% First Resources Ltd 2,085 1,731 9.8% 21.3% 14.9% 15.1x 2.1x 2.1%

  Source: Bloomberg, NHKS research

  Source: Company, NHKS research

  CPO Sales Trend | 2014 - 2018 Performance Highlights

  Source: MPOB, Bloomberg, NHKS Research

  Malaysia Palm Oil Inventory (000’ tons) | 2016-2018

  Source: MPOB, Bloomberg, NHKS Research

  Malaysia Palm Oil Production Data (000’ tons) | 2016-2018

  Source: Bloomberg, NHKS Research

  CPO CIF Rotterdam (IDR/kg) | 2014-2018

  Source: Company, NHKS research

  AALI Sales Trend | 2013 - 2018

  Source: Company, NHKS research

  AALI Gross Profit Margin | 2014 - 2018

  Multiple Valuation Forward P/E band | Last 2 years Dynamic Forward P/E band | Last 2 years

  Source: NHKS research Source: NHKS research

  Rating and target price update Target Price Revision

Date Rating Target Price Last Price Consensus vs Last Price vs Consensus

  01/03/2018 Hold 14,425 (Dec 2018) 13,275 16,932 +8.7% -14.8% 03/09/2018 Buy 18,375 (Dec 2018) 14,750 15,955 +24.6% +15.2% 05/17/2018 Buy 14,800 (Dec 2018) 12,000 15,438 +23.3% -4.1%

  Source: NHKS research, Bloomberg

  Analyst Coverage Rating Closing and Target Price

  Source: Bloomberg Source: NHKS research

  NH Korindo Sekuritas Indonesia (NHKS) stock ratings

  Period: End of year target price Rating system based on a stock’s absolute return from the date of publication

  Buy : Greater than +15% Hold : -15% to +15% Sell : Less than -15%

INCOME STATEMENT BALANCE SHEET CASH FLOW STATEMENT

  79.7 EVA Uni ted Sta tes

  Ca pex (2,285) (1,663) (1,799) (2,010)

  CFI (2,395) (1,754) (1,751) (1,963) (Unl evered) FCFF 617 1,279 1,152 1,529 Di vi dends Pa i d (191) (997) (955) (874) WACC

  Net Borrowi ng (PMT) (3,450) (607) - (300) Cos t of Debt (Ta x Adj.) 9.9% 6.1% 6.8% 6.8%

CFF 269 (1,273) (961) (1,182) Cos t of Equi ty (COE) 9.5% 8.6% 9.7% 9.7%

Net Changes in Cash 237 (269)

  56 199 WACC (%) 9.6% 8.1% 9.2% 9.2% RIM Sprea d (FROE-COE) (%) 7.6% 2.9% 0.8% 1.2% Res i dua l Income (IDR) 891 504 149 240

  By Geography % Shareholders % Equi ty Cha rge 1,116 1,506 1,794 1,905 Indones i a

  94.68 As tra Interna ti ona l ,Tbk

  4.22 Sun Li fe Fi na nci a l

  Summary of Financials

DISCLAIMER

  1.4 Inves ted Ca pi ta l (IDR bn) 21,695 22,506 23,702 24,666 Luxembourg

  0.34 Di mens i ona l Fund

  0.7 ROIC-WACC (%) -0.4% 0.8% -1.0% -0.6% Fi nl a nd

  0.21 Va ngua rd Group

  0.7 EVA (IDR bn) (76) 181 (236) (136) OWNERSHIP PROFITABILITY & STABILITY

  VALUATION INDEX DCF, RIM & EVA Analyst: Joni Wintarja May 15, 2018

  NOPAT 2,545 2,194 2,127 2,341

Chg. In Worki ng Ca pi ta l (713) (442) (459) (194) +Depr./Amor. 1,070 1,189 1,284 1,392

  23.1 In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E

Ca s h 532 262 319 518 Pri ce /Ea rni ngs 16.1x 12.6x 11.9x 10.8x

Recei va bl es 527 548 420 463 Pri ce /Book Va l ue 1.8x 1.4x 1.2x 1.1x

Inventori es 2,097 2,018 2,229 2,497 Pri ce/Sa l es 2.3x 1.5x 1.2x 1.1x

Total Current Assets 4,052 4,246 5,068 5,502 PE/EPS Growth 0.1x 75.2x -3.6x 1.0x

Pl a nta ti ons 6,675 6,747 7,136 7,569 EV/EBITDA 9.7x 6.9x 6.4x 5.7x

Fi xed As s ets 10,028 10,152 10,281 10,466 EV/EBIT 13.7x 9.7x 9.1x 8.1x

Other Non Current As s ets 3,472 3,790 3,899 3,845 EV (IDR bn) 36,314 29,454 27,252 26,746

Total Assets 24,226 24,935 26,385 27,381 Sa l es CAGR (3-Yr) 3.7% 2.0% 13.8% 14.5%

Pa ya bl es 940 833 1,036 1,094 EPS CAGR (3-Yr) 3.7% -7.1% 46.4% 2.2%

ST Ba nk Loa n 400 600 600 300 Ba s i c EPS (IDR) 1,043 1,044 1,010 1,115

Curr Ma turi ti es of LT Debt 1,585 - - - Di l uted EPS (IDR) 1,043 1,044 1,010 1,115

LT Debt 2,116 3,369 3,422 3,422 BVPS (IDR) 9,141 9,631 10,225 10,882

Other Non Current Li a b. 574 720 734 727 Sa l es PS (IDR) 7,337 8,991 10,009 11,019

Total Liabilities 6,633 6,399 6,704 6,438 DPS (IDR) 469 448 454 502

Shareholders' Equity 17,593 18,536 19,680 20,944

In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E

Net Income 2,007 2,010 1,943 2,145 DCF (IDR bn) Deprec & Amorti za ti on 1,070 1,189 1,284 1,392

  23.1

  25.3

  

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  AALI Summary Last Price (IDR) 12,000 Target Price (IDR) Dec 2018 14,800 2016/12A 2017/12A 2018/12E 2019/12E Rating: Buy ROE 13.7% 11.1% 10.2% 10.6%

  ROA 8.8% 8.2% 7.6% 8.0% ROIC 9.3% 8.9% 8.2% 8.7% EBITDA/Equi ty 25.5% 23.5% 22.4% 23.1%

  

In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E EBITDA/As s ets 16.3% 17.2% 16.7% 17.5%

Sales 14,121 17,306 19,264 21,209 Ca s h Di vi dend (IDR bn) 903 863 874 965

  

Growth (% y/y) 8.1% 22.5% 11.3% 10.1% Di vi dend Yi el d (%) 2.8% 3.4% 3.8% 4.2%

COGS (10,445) (13,160) (15,037) (16,555) Pa yout Ra ti o (%) 45.0% 42.9% 45.0% 45.0%

Gross Profit 3,676 4,145 4,227 4,654 DER 23.3% 21.4% 20.4% 17.8%

  

Gross Margin 26.0% 24.0% 21.9% 21.9% Net Gea ri ng 30.9% 27.9% 26.2% 22.4%

Opera ti ng Expens es (1,017) (1,094) (1,224) (1,348) LT Debt to Equi ty 21.0% 18.2% 17.4% 16.3%

EBIT 2,659 3,051 3,003 3,306 Ca pi ta l i za ti on Ra ti o 18.9% 17.6% 17.0% 15.1%

  

EBIT Margin 18.8% 17.6% 15.6% 15.6% Equi ty Ra ti o 72.6% 74.3% 74.6% 76.5%

Depreci a ti on 1,070 1,189 1,284 1,392 Debt Ra ti o 16.9% 15.9% 15.2% 13.6%

EBITDA 3,728 4,240 4,287 4,698 Fi na nci a l Levera ge 156.1% 136.1% 134.3% 132.4%

  

EBITDA Margin 26.4% 24.5% 22.3% 22.2% Current Ra ti o 102.8% 183.8% 198.9% 240.4%

Interes t Expens e (145) (94) (146) (152) Qui ck Ra ti o 26.9% 35.1% 29.0% 42.8%

EBT 2,209 2,939 2,896 3,197 Ca s h Ra ti o 13.5% 11.4% 12.5% 22.6%

Income Ta x (94) (825) (845) (933) Ca s h Convers i on Cycl e

  54.1

  44.4

  36.9

  38.9 Mi nori ty Interes t (107) (103) (108) (119) Pa r Va l ue (IDR) 500 500 500 500

Net Profit 2,007 2,010 1,943 2,145 Tota l Sha res (mn) 1,925 1,925 1,925 1,925

  

Growth (% y/y) 224.2% 0.2% -3.3% 10.4% Sha re Pri ce (IDR) 16,775 13,150 12,000 12,000

Net Profit Margin 14.2% 11.6% 10.1% 10.1% Ma rket Ca p (IDR tn)

  32.3

CFO 2,364 2,757 2,768 3,343 -CAPEX (2,285) (1,663) (1,799) (2,010)

• Incr. (Decr.) i n Worki ng Ca p. (713) (442) (459) (194)