8 August 2014 Page | 1 MCI (P) 046/11/2013 Ref. No.: SG2014_0013 MCI (P) 046/11/2013 Ref. No.: INDO2014_0002 Astra Agro Lestari “Market Leader” Planter: New Innovation Supported Cost Efficiency in The Future INDONESIA | PLANTATION | INITIATION Rating: Buy Initiated with Buy Company Background Astra Agro Lestari (AALI), founded in 1981 as a subsidiary of Astra International (Astra Group), is the largest CPO producer in the country with the largest market share (36.7%) supported by planted area of 281,378 hectares (nearly 4 times the size of Singapore), making AALI one of the largest oil palm plantation listed companies in the world. The major business lines for AALI are Crude Palm Oil (90.56%) and Palm Kernel (9.37%), and AALI plans to expand to the downstream sector by producing olein, stearin, and PFAD this year. Undervalued Stock with a Strong Business Model AALI’s business model is an upstream palm plantation player and starts to enter downstream activity this year. The upstream business gives exposure to CPO prices, while downstream business gives a relatively stable income stream. Addition of rubber business is likely an earnings catalyst which we believe is yet to be priced in. To improve its competitiveness, AALI has set up a joint venture with KL-Kepong Plantation Holdings Sdn, Bhd, a Malaysian-based company. The joint venture company is named Astra-KLK Pte, Ltd. and is established to market the olein, stearin, and PFAD products and provide the logistics support. AALI has a strong track record in plantation sector, which has proven its ability as a market leader since 33 years ago amid high competition in the plantation industry. Investment Merits Leading CPO player in Indonesia with 36.7% market share. AALI is a leading palm oil producer in Indonesia with total production of 1.54 million tons of CPO, supported by mature planted area of 247,287 hectares in FY2013. We expect mature planted area to grow at a 5% CAGR over the next 5 years. AALI has the biggest mature planted area compared to the other plantation companies in Indonesia. Expand to international market in 2014. Related with tax incentive policy by government for CPO derivative product, AALI built a new refinery in Mamuju, West Sulawesi, with total capacity of 2,000 tons/ day to produce olein (75%), stearin (20%), and PFAD (5%) in 2014. To market its new products, AALI has set up a joint venture company in Singapore to market its new products. AALI is the only Indonesian listing plantation company that going to international market. Rising revenue even with a flatish CPO price. In the period ended 31 December 2013, AALI booked net revenue of IDR 12.67 trillion, an increase of IDR 1.11 trillion or 9.6% compared with IDR 11.56 trillion in 2012, despite the CPO price volatility which made the average selling price (ASP) declined by 0.6% year on year to IDR 728 and the unfavorable weather condition. Rising revenue was primarily driven by CPO high demand alongside the steady increase of global population and a rising per capita consumption ratio. In addition, AALI also continues to improve its cost efficiency through intensification and Target Price (IDR) 33897 Forecast Dividend (IDR) 697 Closing Price (IDR) 26350 Potential Upside 31.3% Company Description Company Data Raw Beta (Past 2yrs weekly data) 0.04 Market Cap. (USD mn / IDR tn) 3612/41770 Ent. Value (USD mn / IDR tn) 3855/44610 3M Average Daily T/O (mn) 1.50 Closing Px in 52 wk range 13,100.00 29,850 Major Shareholders (%) 79.6 20.4 Valuation Method Discounted cash flow (DCF) Analyst Milka Mutiara [email protected]+62 21 57900800 As tra Agro Lestari is a leading palm oil plantation company in Indonesia with main segment in upstream business supported by 281,378 hectares planted area, 26 CPO mills, and 43 subsidiaries. It is majority owned by Astra International (Astra Group). This year, Astra Agro Lestari plans to expand in downstream business through its joint venture company, Astra-KLK Pte. Ltd. in Singapore. 1. Astra International 2. Public 0 5 10 15 20 10000 15000 20000 25000 30000 35000 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Volume, mn AALI IJ Equity JCI rebased Analyst Phillip Research Team +65 65311240 [email protected]
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*Forward multiples and yields are based on current price and historical yields are based on historical price.
Key Financial Summary
Astra Agro Lestari 8 August 2014
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Background of Company
History
PT Astra Agro Lestari Tbk. (AALI.JK) was established dated October 3rd, 1988. The
scope of its activities is to engage in plantation operation, general trading,
manufacturing, transportation, consultation and services. The company has
investments in 43 subsidiaries which are engaged in oil palm and rubber
plantations and industrial services. The company commenced commercial
operations in 1995. At FY2013, AALI has total mills of 26 mills, which all together
able to produce up to 1,280 tons of FFB/hour.
Figure 1: AALI’s plantation operational area (As of December 2013)
Notes:
Source: Company, PSI Research
PT Astra International Tbk. (ASII.JK) is the parent entity of the Company, whereas
Jardine Matheson Holdings Ltd, incorporated in Bermuda, is its ultimate parent
entity. As of December 31st, 2013, the Company manages the total of 281,378 ha
of oil palm plantations in Sumatra (Aceh, Riau, Jambi), Kalimantan (Central
Kalimantan, South Kalimantan, East Kalimantan), and Sulawesi (West Sulawesi and
Central Sulawesi), which consist of 220,021 ha of nucleus states and 61,357 ha of
plasma estates (See Figure 3). In order to operate, the Company employs 29,766
permanent employees in Jakarta, Sumatra, Kalimantan, and Sulawesi for the daily
operations.
Figure 2: AALI’s plantation composition by area
Kalimantan44%
Sumatera38%
Sulawesi18%
Source: Company, PSI Research
Figure 3: AALI’s plantation composition by
ownership
Nucleus78%
Plasma22%
Source: Company, PSI Research
No Location Mature (Ha) Immature (Ha) Total (Ha) 1 Aceh 9,100 2,644 11,744 2 Riau 5,591 5,340 61,931 3 Jambi 33,178 - 33,178
Sumatera 98,869 7,984 106,853 4 Central Kalimantan 52,308 704 53,012 5 East Kalimantan 40,805 3,232 44,037 6 South Kalimantan 9,081 16,687 25,768
Kalimantan 102,194 20,623 122,817 7 West Sulawesi 29,769 2,133 31,902 8 Central Sulawesi 16,655 3,151 19,806
Sulawesi 46,424 5,284 51,708 Total 247,487 33,891 281,378
Astra Agro Lestari 8 August 2014
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Figure 4: Majority Shareholders Structure of AALI
79.58%
50.7%
72.18%
82.12%
Source: Company
Figure 5: Company History Highlights
Source: Company, PSI Research
1983
• PT Astra International established its Agribusiness Division. It was stareted with a cassava plantation of 2,000 hectares.
1984
• The first involvement in the cultivation of oil palm began with the acquisition of PT Tunggal Perkasa Plantations, which owned and managed 15,000 ha of oil palm plantations in Riau.
1988
• PT Suryaraya Cakrawala established which was then changed tp PT Astra Agro Niaga in 1989.
1997
• PT Astra Agro Niaga completed a merger with PT Suryaraya Bahtera and the Company's name was changed to PT Astra Agro Lestari.
Astra Agro Lestari Indonesia
Public Company listed in Indonesia
Astra International Indonesia
Public Company listed in Indonesia
Jardine Cycle & Carriage Limited Singapore
Public Company listed in Singapore
Jardine Strategic Holdings Limited Bermuda
Public Company with premium listing in London
Jardine Matheson Holdings Limited Bermuda
Public Company with premium listing in London
Others 20.32%
(all < 5%)
Others 27.82%
(all < 10%)
Others 49.89%
(all < 5%)
Others 17.88%
(all < 10%)
Others 44.85%
(all < 10%)
Astra Agro Lestari 8 August 2014
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Management
The Company’s Board of Commissioners consists of 7 people and 3 of them are
Independent Commisioners. The Board convenes a quarterly meeting to discuss
the Company’s performance and relevant issues to monitor the execution of the
Company’s strategic planning and work plan.
Most recently, management has commited to innovating business operations and
improving the cost eficiency to boost its net profit. Additionaly, the company will
apply a fertilizer spreader system and mechanization programme, in an attemp to
reduce the company’s labor costs and increase the time efficiency.
Business Model and Business Segment
Purposes: There are two broad goals that AALI sets to achieve (1) to be the most
productive and innovative agribased company in the world and (2) to be the role
model for other plantation companies and contributes to the nation’s
development and prosperity.
Process: From the track records of its system, AALI has demonstrated its ability to
produce maximally. In 2013, the Company’s strategy focused on 4 areas consisting
of (1) improvement in internal processes to achieve cost leadership by pursuing
intensification and mechanization programs, (2) development of potential
upstream business by producing own seeds as well as downstream business by
completing the construction of refinery in West Sulawesi, with a total capacity of
2,000 tons CPO/day, (3) diversification by planting rubber, and (4) expansion
program by opening new planting areas and pursuing its replanting programs
consistently.
3 Business Segments
Figure 7: Palm Product Derivative
Source: Company, PSI Research
Figure 6: AALI has mechanization programs to
achieve its cost leadership.
Source: Company
Stearin
Olein
PFAD
Palm Kernel Oil
Charcoal
Mulching
Crude Palm Oil (CPO)
Empty Bunch
Fiber
Palm Shell
Fresh Fruit Bunch (FFB)
Palm Kernel
Astra Agro Lestari 8 August 2014
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AALI is involved in 3 business segments (1) Crude Palm Oil (90.56%), (2) Palm
Total Returns Recommendation Rating> +20% Buy 1+5% to +20% Accumulate 2-5% to +5% Neutra l 3-5% to -20% Reduce 4< -20% Sel l 5
We do not base our recommendations entirely on the above quanti tative
return bands . We cons ider qual i tative factors l ike (but not l imited to) a s tock's
ri sk reward profi le, market sentiment, recent rate of share price appreciation,
presence or absence of s tock price cata lysts , and speculative undertones
surrounding the s tock, before making our fina l recommendation.
Ratings History
PSR Rating System
Remarks
12345
1.4
5001.4
10001.4
15001.4
20001.4
25001.4
30001.4
35001.4
40001.4
Jan-1
2
Apr-12
Jul-12
Oct-1
2
Jan-13
Apr-13
Jul-13
Oct-13
Jan-1
4
Apr-14
Jul-14
Oct-14
Jan-15
Source: Bloomberg, PSRMarket Price
Target Price
Astra Agro Lestari 8 August 2014
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Astra Agro Lestari 8 August 2014
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