by Indopremier Securities
Delayed in replanting scheme few years ago has made AALI lost its growth momentum. Declining FFB production signal continues surely caused by its aging plantation profile combined with insufficient unplanted landbank. Nonetheless, we are still calling Hold for AALI given its good management profile, liquid shares, and future expansion plans view to sugar industry and CPO downstream.
AALI’s 9M11 sales was up 38.7% yoy, supported by CPO and Kernel selling price increase of 16.5% and 39.1% respectively. Third party buying of FFB to boost up CPO production, has increased 86.1% yoy and made up 16.8% of total FFB processed. This is largely because of the aging plantations profile. We are less satisfied by margins squeezed across the board. COGS has swelled 39.7% yoy compared to 9M10 and made gross profit margin depressed. An increase of 339% yoy in 9M11 from non operating income has contributed into 32.8% pre-tax margin and 23.4% net income margin.
Slackening CPO & Kernel Production
We also note that CPO and Kernel extraction rate were down 1.4% and 4% yoy respectively. This could indicate a slow delivery of FFB to the mill. AALI is improving the evacuation system from conventional to net system while accelerating new mills construction near its newly mature estate. Currently AALI operates 22 mills across its estate, and targeting 26 mills in the end of 2012.
Delayed Replanting is still an issue
The company has confirmed that they have fully planted the remaining land bank and is still searching for a suitable new land acquisition for palm and its plan on entering sugar business which has restrained for the past 2 years. Unfortunately, we foresee a declining of FFB production over the next decade given that the last 10-years mature area CAGR was only around 2.5% which happened due to deceleration of planting and replanting.
Valuation and Recommendation
Valuation remains expensive given 2012F PE of 15x, compared to 9.7 average sector PE. However we believe AALI deserves premium valuation on the back of : 1) its good management, 2) better long growth outlook given company’s plan on sugarcane and downstream expansion plans, 3) high liquidity characteristic due to its largest market cap status. We are still recommending Hold for AALI with target price Rp17,000.