Name of Analyst : Vera Ongyono Report : Update Recommendation : Outperform Target Price : Rp 1,600 Report Title : David & Goliath Contact Detail : (62 21) 2554 8832 - vera.ongyono@clsa.com
Summary David & Goliath
What’s New We cut our recommendation from BUY to O-PF, reflecting a strong share price performance in the past month. AKR Corporindo will continue to reap the advantage of being the first private mover in unsubsidized petroleum distribution market, while the recent deregulation on subsidized market could be another kicker to sales volume. Manufacturing segment will continue to grow on the back of growing starch and sorbitol demand. Our target price of Rp1,600 implies 15x 2011 PER.
Name of Analyst : Adi N Wicaksono Report : Update Recommendation : Buy Target Price : Rp 1,320 Report Title : Petroleum sales to remain robust Contact Detail : (62 21) 2557 1130 - anwicaksono@kimeng.co.id
Intense competition of petroleum distribution in Java Our recent meeting with AKR Corporindo (AKRA) reveals that its petroleum distribution business in Java is facing tough competition from Shell and Petronas, which are slashing prices and selling at some 8-10% lower than AKRA. At the moment, AKRA does not want to get into a price war, but as a result has not been able to book the volume growth as we had initially expected. At the end of 2009, we expected AKRA’s petroleum volume business to grow 40% y-y to 1.4m kl. However, as a result of this intense competition, we now expect the company’s high-speed diesel fuel volume to only grow 20% to 1.23m kl, which is in line with management’s guidance. For 1Q10, AKRA has provided a guidance of 300k kl, lower when compared to 4Q09 volume of 320k kl
Reiterate BUY, TP of Rp1,580 We reiterate our BUY recommendation on AKRA with a Target Price of Rp1,580, implying 14.42x- 11.79x 10F-11F PER and 1.86x-1.61x 10F-11F PBV. This takes into account 16.7% dilution from the second rights issue. Our new numbers reflect: 1) an upgrade in the 2012 fuel oil sales volume due to capacity addition, 2) a lower opex to sales estimate, 3) a working capital adjustment given the 9M09 performance. All in all, our 10F-11F net profits estimate is upgraded by 9.6%-7.3% but the Target Price is maintained at Rp1,580 due to the longer cash conversion cycle estimate for the non- SOBI Business. At the current share price the stock is trading at an attractive valuation of 9.40x- 7.69x 10F-11F PE and 1.21x-1.05x 10F-11F PBV or lower than our market estimate PER for FY10-11 of 13.7x-11.8x and our market estimate PBV for FY10-11 of 2.7x- 2.4x.
- AKR Corporindo’s FY09 net profit increased 31% y/y, although revenue was down 5% y/y; both were in line with our estimates. The higher net profit was mainly due to forex gain of Rp50b and reduction in income tax ratio to 27% from 31%. Lower selling prices led the decline in revenue.
- Management will decide on the dividend payout during the 4 May AGM. Assuming a 31% DPOR, we expect DPS of Rp23 (yield = 2.6%).
