Tuesday, March 15, 2011

PT Astra Agro Lestari Tbk(AALI)

by Batavia Prosperindo

· Outperform ours and align with consensus
AALI net income were up 21% y-o-y to Rp2.02 tn and came inline within consensus estimation at 103.5% achievement but it outperform our projection by 16.8%. Sales were up 19% y-o-y to Rp8.8 tn due to rising average selling price (ASP) for CPO and Kernel. ASP for CPO were Rp7,027/kg, grew by 12.6% y-o-y, while Kernel ASP showed a significant 57.4% y-o-y increment, reaching Rp4,070/kg.

· Improving production

Unusual weather was still a dominant factor last year, inducing lower production across plantation companies. As for AALI, total fresh fruit bunch (FFB) processed last year climbed by 3.7% due to a significant surge in third party purchases, up 60.5% y-o-y. FFB processed from nucleus estates were slightly lower 0.3% y-o-y and FFB from plasma declined by 5.4% y-o-y. Overall, nucleus and plasma production were inline but total FFB processed was beyond our projection as result of unexpected jump in third party purchases. For FY11 and FY12, total FFB processed will remain flat based on our estimation with 2.9% and 4.8% increase respectively.

· Higher CPO price assumption

We raised our average CPO price assumption to $1,000 per MT for 2011 onward from the previous $900 on the back of short supply and rising demand especially from China and India. Our assumption was still a 25% discount from CIF Rotterdam last price. Subsequent to raising our assumption, we estimate sales to grow by 15.3% in 2011 and by 4.8% in 2012, while net earnings will rise by 37.7% in 2011 and 7.1% in 2012.

· Upgrading target price but maintain HOLD

Following our hike on CPO price assumption for FY11 onwards, we raised AALI target price to Rp25,950 based on a DCF valuation assuming 11.5% WACC and 4% terminal growth. But due to limited upside available, we maintain our HOLD recommendation on AALI. Our target price implied a 13.7X FY12 PE.