20151104-Maybank_KERPL-The_tide_has_turned__U_G_to_BUY_11页_649kb

Astra Agro Lestari (AALI IJ) Summary

Core Content and Investment Thesis

Astra Agro Lestari (AALI IJ) has been upgraded from SELL to BUY, with a target price (TP) of IDR24,000, representing a 21% increase from the current share price of IDR19,850. The upgrade is based on a brighter outlook for Crude Palm Oil (CPO) prices, driven by the strengthening El Nino, which is expected to reduce palm oil production and increase demand. The TP is calculated using an EV/planted ha of USD13,500, implying a 2016F forward PER of 24x, slightly above the historical mean.

Key Financials

Key Viewpoints

• CPO Price Outlook: The strengthening El Nino is expected to reduce overall FFB production in 2016, leading to lower supply and higher CPO prices. The forecasted CPO ASP for 2016F is IDR7,729/kg, up 8% from 2015F's IDR7,183/kg.
• Impact on Profit: Every IDR100/kg rise in CPO ASP leads to approximately a 5% increase in AALI's 2016F profit.
• Earnings Forecast: AALI's earnings are forecasted to rise by 34% for 2016F and 27% for 2017F, driven by the improved CPO price outlook.
• Dispersed Estates: AALI's estates are well dispersed, with only 40% in areas affected by severe drought and haze, reducing its exposure to production disruptions compared to other plantation companies.
• Currency Risk: AALI is heavily indebted in USD, making it vulnerable to a stronger USD. IDR appreciation would benefit the company's bottom line.
• Haze Impact: The prolonged haze has affected production, but the impact is expected to be felt in 1H16, with potential declines in FFB yield due to tree stress.

Risks

• Weather Impact: If El Nino fails to reduce supply, CPO prices may remain under pressure, negatively affecting forecasts.
• Crude Oil and Substitutes: A decline in crude oil and soybean oil prices could cap CPO price growth or even put downward pressure on CPO prices.
• Government Regulations: New export levies and potential changes could affect the net effective selling price for producers.

Operational and Financial Highlights

• Age Profile of Plantations: AALI has 235,423 hectares of planted oil palm, with 17% immature, 30% young mature, 35% prime mature, and 35% past prime.
• Plasma Area: AALI has 62,431 hectares of plasma area.
• Plantation Map & Mill Capacity: AALI operates 29 CPO mills, 2 CPO refineries, and 8 kernel crushers, with a total mill capacity of 34,440 tons/day.
• Liquidity Ratios: The company has a current ratio of 0.5, indicating moderate liquidity.
• Debt Levels: Net debt/equity is expected to decrease from 48% in FY15E to 41.5% in FY17E.
• Dividend Cover: AALI maintains a consistent dividend cover of 2.9x.

Share Price Performance

• Absolute Performance: 3.9% over 1 month, 0.3% over 3 months, and -16.8% over 12 months.
• Relative to Index: -3.5% over 1 month, 6.2% over 3 months, and -6.6% over 12 months.

Market Capitalization and Key Data

• Market Cap: IDR31.3T
• Free Float: 20.3%
• Issued Shares: 1,575 million
• Average Turnover (USDm): 2.2
• 52-Week High/Low (IDR): 27,400 / 14,800

Sensitivity Analysis

• CPO ASP Change (IDR/kg): A change of ±100/kg leads to a 5.5% to 28.0% change in earnings for 2016F, and ±100/kg leads to a 5.3% to 26.6% change in earnings for 2017F.

Conclusion

The upgrade to BUY is based on the expected improvement in CPO prices and the company's diversified plantation strategy. While 2015 was a disappointing year, the improved outlook for 2016 and beyond suggests that AALI could benefit significantly from the El Nino-induced production disruption and potential CPO price spike. However, the company remains vulnerable to currency fluctuations and other market factors that could impact its profitability.