Equity Research //Result Update

astra AGRO lestari

SELL

Dried Future

An IDR weakening against the USD makes us pessimistic about the Indonesian currency regaining value this year. Furthermore, we predict IDR to USD in 2015F will range between IDR13,000/USD - 13,500/USD on the back of weakening 6-month forward exchange rate, along with a deficit in Indonesia’s current account. Nevertheless we predict global CPO prices to touch MYR2,300/ton, but we think that it may not help AALI’s bottom-line. According to the company each 10% weakening in IDR against the USD will cost AALI around IDR300 bn. We therefore reduce our price target to IDR22,300.

Moderate production growth outlook Based on our conversation with management, the smaller FFB harvest and production during January-March signifies a longer dry season for the last year. Meanwhile, Kalimantan estates is the factor which dragged AALI’s FFB. In contrast, lower FFB harvesting has only decreased AALI FFB production by 1.3% YOY; it was supported by more expensive FFB from third parties. Apart from lower FFB production, we see AALI posted lower CPO extraction rate, because of higher FFB purchases from third parties. Going forward, AALI has set its CPO production target by only 5.0% YoY higher, to 1.8 mn tons, the result of an anticipated El Niño this year.

Disappointing performance From our bottom-up analysis, we conclude there are several factors which have caused AALI’s bottom-line to dip significantly, by 80.1% YOY: (1) Higher interest bearing debt in USD denomination, hence inflicting foreign exchange loss on AALI, (2) Higher inventory, (3) Lower ASP, both in CPO and Kernel products, and (4) lower sales volume, caused by the poor harvest, as mentioned above. During the first quarter of this year, the company’s interest bearing liabilities was higher to fund working capital and capex. From inventory to sales ratio, there was an increase to 0.17x, from 0.10x in 3M14. Additionally, lower ASP for products, due to slowing global CPO prices early this year. Overall, all these factors significantly corrode AALI’s profitability margin, from gross profit margin to net profit margin.

Concerns about forex exposure We predict that IDR to USD rate will range between IDR13,000/USD - 13,500/USD for the next six months. Our prediction is based on Unbiased Forward Hypothesis (UFH), a theory used to predict a current forward exchange rate equal to future spot exchange rate. Even though Indonesia CAD to GDP has improved in 3M15, we are pessimistic about the possibility that Indonesia current account will end in a surplus, because there are no signs of that in the near term. We predict Indonesia CAD to GDP will range around 2.0% - 2.5%.

Andy wibowo gunawan [email protected] +62 21 299 60 703

26th May 2015

Indonesia Plantation Current Price IDR26,500 Price target IDR22,300 Downside potential (%) 15.8 Stock Data Bloomberg Ticker AALI IJ Equity Outstanding share (bn) 1.57 Market Cap (USD bn) 3.17 52 week range (Rp) 19,250-29,350 6M Avg Value(Rp bn) 32.9 YTD Returns (%) 7.6 Beta (x) 0.5

Major Shareholders (%) Astra International 79.7 Public 20.3

Share Price Performance 29,500 28,500 27,500 26,500 25,500 24,500 23,500 22,500

Reduce price target

21,500

For the gloomy outlook related to macro conditions, including a depreciation of the IDR to USD and shrunken CPO sales volume, we downgrade our price target to IDR22,300 from IDR30,650. Meanwhile, we have yet to perceive any strategy from the company to deal with this challenging outlook.

19,500

20,500

Key Investment Metric Financial Performances Revenue (IDR bn) Net Profit (IDR bn)

2013

2014

2015F

2016F

2017F

12,675

16,306

15,474

16,621

18,616

1,801

2,504

1,162

1,224

2,023

NPM

14.2%

15.4%

7.5%

7.4%

10.9%

ROE

17.5%

21.2%

9.2%

9.2%

13.9%

2.5%

2.5%

1.1%

1.1%

1.9%

21.9

15.3

35.4

33.6

20.3

3.8

3.2

3.3

3.1

2.8

Dividend Yield PE (x) PBV (x)

18,500 Jan-14

Apr-14

Jul-14

Oct-14

Share Performance (%) Month Absolute 3m 6.6 6m 6.1 12m 0.1

Jan-15

Apr-15

Relative 11.4 6.8 -7.7

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1

Figure 1: AALI’s Productivity

Figure 2: Inventory Trend

'000 tons 6,500.0

Ton/ha 27.0

IDR bn

22.0

600.0

5,500.0 4,500.0

17.0 12.0

2,500.0

0.14 0.10

500.0

0.04

2013

2014

Production

Source: Company

3M14

556.5

2012

387.0

2011

0.06

387.0

2010

2010

2011

2012

2013

2014

3M14

3M15

100.0

0.04 0.02 0.00

3M15

Inventory

Yield

0.08

655.0

2.0

0.10

406.5

500.0

200.0

0.03

306.3

1,500.0

0.03

300.0

0.12

0.02

268.5

7.0

(x) 0.18 0.16

400.0

3,500.0

0.17

0.05

700.0

Inventory to Sales

Source: Company

Even though AALI 2014 FFB yield was higher compared to 2013, we consider 3M15 FFB yield, which is lower than the previous period. This resulted from a longer dry season six months ago.

Higher beginning inventory in COGS is the main reason why AALI’s gross profit has eroded in first round this year. We note that AALI inventory sales have increased to 0.17x from 0.10x in 3M14. This is the result of shipments delivered to customers in March 2015.

Figure 3: USD Bearing Debt Trends

Figure 4: AALI’s Net Profit Trends IDR bn

USD ‘000 325,000

3,050

263,125

275,000 221,875

225,000 175,000

150,000

221,875

135,000

1,801

1,550

125,000 75,000

75,000

2,504

2,410

2,050

155,000

135,000

2,550

1,050

25,000

785

550

2013

2014

3M14

156

3M15 50

Short Term Debt

Long Term Debt

2012 Source: Company

Source: Company

2013

2014

3M14

3M15

Since 2013 AALI’s USD interest bearing debt has always increased where this debt is used for additional capital expenditures and also for working capital. According to management, this trend will continue if global CPO prices deteriorate.

Lower FFB harvest, higher inventory and foreign exchange loss (as a result of high USD denominated interest bearing liabilities) are the main reasons for AALI’s 80.1% yoy net profit drop in 3M15.

Figure 5: IDR/USD Spot and Forward

Figure 6: Indonesia CAD to GDP 5.00%

IDR/USD 14,000

4.00%

13,000

3.00%

12,000

2.00%

11,000

1.00% 0.00% -1.00%

9,000

-2.00%

8,000

Mar-15

Jan-15

Sep-14

Nov-14

May-14

Jul-14

Mar-14

Jan-14

Sep-13

Nov-13

May-13

Jul-13

Mar-13

Jan-13

Sep-12

Nov-12

May-12

Jul-12

Mar-12

Jan-12

Sep-11

Nov-11

May-11

Jul-11

Mar-11

Jan-11

Nov-10

-3.00%

January-15 August-14 March-14 October-13 May-13 December-12 July-12 February-12 September-11 April-11 November-10 June-10 January-10 August-09 March-09 October-08 May-08 December-07 July-07 February-07 September-06 April-06 November-05 June-05

10,000

-4.00%

Source: Bloomberg

-5.00% Source: Bloomberg

Based on Unbiased Forward Hypothesis theory which states that current forward rate will reflect future spot rate,we remain pessimistic that IDR to USD will rebound going forward.

We see there is not improvement sign for Indonesia Current Account due to Indonesia’s CAD to GDP still in negative teritory.

Spot

Forward 6 Months

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2

Figure 7: AALI’s PE Band

Figure 8: AALI’s PBV Band

20.0

6.0 +2 ST. Dev

18.0

+1 ST.Dev

5.0

+2 ST. Dev

16.0 Mean 14.0

+1 ST.Dev 4.0 Mean

-1 ST.Dev

12.0

-2 ST. Dev

10.0 Jan-10

Oct-10

Jul-11

Apr-12

Jan-13

Oct-13

Jul-14

3.0

-1 ST.Dev

2.0 Jan-10

Apr-15

-2 ST. Dev Oct-10

Jul-11

Apr-12

Jan-13

Oct-13

Source: Bloomberg

Source: Bloomberg

AALI PE trades break its mean in the last week.

Currently, AALI PBV trades at 3.2x of PBV.

Figure 9: Rating Consensus Trend 100.0%

Apr-15

Figure 10: Valuation Map 6.7%

12.5%

Jul-14

32,000

P/E (x) 26.0

28.6% 80.0%

30,000 40.0%

60.0%

100%

100%

100%

21.4%

100%

22.0 SSMS

28,000

18.0 BWPT

88%

14.0 40.0% 50%

53%

24,000 Nov-14

Dec-14

Jan-15 BUY

Feb-15

Mar-15

HOLD

SELL

Apr-15

DSNG

26,000

SGRO

10.0

20.0%

AALI

LSIP

May-15

Price

TBLA ROE (%)

6.0 1%

6%

11%

16%

21%

26%

31%

36%

Source: Bloomberg

Source: Bloomberg

We see there is lowering “SELL” recommendation in May 2015.

Compared to its peers, AALI trades premium than peers.

Figure 11: Net Value by Brokerage Ytd

Figure 12: Net Value by Brokerage YoY

RX, 21.3%

41%

NI, 21.8%

Others, 24.8%

Others, 45.1% PD, 8.1% OD, 6.3%

CG, 15.0%

CP, 7.8%

BK, 6.9% AK, 10.7%

CS, 7.1%

BW, 5.4%

BW, 7.8%

CD, 5.7%

OD, 6.1%

Source: Bloomberg

Source: Bloomberg

The first ranked in net value by broker from foreign house in year to date.

In yearly basis, local houses in the top position.

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3

Table 1: 3M15 Result Financial Performances Revenue Gross Profit Opex Selling G&A Operating Profit Net Profit Profitability Margins Gross Margin Operating Margin Net Profit Margin Operational Sales Volume ('000 tons) CPO Kernel ASP (Rp/Kg) CPO Kernel

3M14 3,726 1,209 (279) (123) (155) 930 785 3M14 32.4% 25.0% 21.1% 3M14

3M15 3,233 764 (312) (136) (177) 451 156 3M15 23.6% 14.0% 4.8% 3M15

YoY -13.2% -36.8% 12.1% 9.9% 13.8% -51.5% -80.1% YoY -8.8% -11.0% -16.2% YoY

4Q14 4,546 1,269 (345) (145) (200) 925 620 4Q14 27.9% 20.3% 13.6% 4Q14

1Q15 3,233 764 (312) (136) (177) 451 156 1Q15 23.6% 14.0% 4.8% 1Q15

QoQ -28.9% -39.8% -9.4% -6.2% -11.6% -51.2% -74.8% QoQ -4.3% -6.4% -8.8% QoQ

2015F %AZ Estimates 15,816 20.4% 4,652 16.4% (1,344) 23.2% (613) 22.1% (731) 24.2% 3,308 13.6% 1,775 8.8% 2015F %AZ Estimates 33.0% -9.4% 18.0% -4.0% 12.7% -7.9% 2015F %AZ Estimates

314 41

258 60

-18.0% 46.3%

370 103

258 60

-30.3% -42.2%

1,846 395

14.0% 15.1%

8,949 5,788

7,839 5,023

-12.4% -13.2%

7,760 4,098

7,839 5,023

1.0% 22.6%

7,773 3,687

100.8% 136.2%

Source: Sucorinvest

AALI’s gross profit margin has significantly decreased to 23.6% from 32.4% compared to corresponding period. This result is due to delaying in goods delivery to the customers and also its reflected in inventory to sales ratio of company which has increased. Meanwhile, the scraper of company’s net profit margin foreign exchange loss where in previous period AALI posted foreign exchange gain.

Table 2: Changes in Our Forecast Financial (IDR bn) IDR to USD Sales Volume ('000 tons) Revenue Gross Profit Operating Profit Net Profit

Source: Sucorinvest

2015F Old New 13,000 13,250 1,846 1,802 15,816 15,474 4,652 4,304 3,308 2,988 1,775 1,162

Change 1.9% -2.4% -2.2% -7.5% -9.7% -34.6%

2016F Old New 13,100 13,500 1,978 1,930 16,988 16,621 4,903 4,546 3,459 3,134 1,732 1,224

Change 3.1% -2.4% -2.2% -7.3% -9.4% -29.3%

We reduce 2.4% AALI’s CPO sales volume to 1.8 mn tons and makes AALI’s revenue will decrease by 2.2% in 2015F. Meanwhile, we change our IDR exchange rate to IDR13,250/USD from IDR13,000/USD. This change makes AALI’s net profit will decrease by 34.6% from our previous target net profit in 2015F.

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Financial Summary Income Statements (IDR bn) Revenue Cost of Sales Gross Profit Operating Expenses EBIT Interest Expenses Other Income (Expenses) EBT Income Tax Expenses Net Profit Balance Sheet (IDR bn) Cash & Near Cash Items Accounts & Notes Receivable Inventories Total Assets Account Payable Short-Term Borrowings Long-Term Borrowings Total Liabilities Total Equity Cash Flow (IDR bn) Net Profit Depreciation Change in WC Cash From Operating Capital Expenditure Others Cash From Investing Dividend Paid Change in Liabilities Change in Equity Cash From Financing Net Changes in Cash Beginning Balance Ending Balance Financial Ratios ROA ROE Gross Margin EBIT Margin Net Margin Net Gearing (x) Interest Coverage (x) Days Receivable Days Payable EPS Growth PE (x) PBV (x) Payout Ratio

2013 12,675 (8,593) 4,082 (1,077) 3,005 (72) (327) 2,605 (702) 1,801 2013 709 21 803 14,963 749 2,152 571 4,695 10,268 2013 1,801 570 549 2,920 (3,112) (90) (3,202) (968) 1,751 37 763 481 228 709 2013 12.0% 17.5% 32.2% 23.7% 14.2% 0.2 41.5 0.6 31.8 -25.3% 21.9 3.8 53.8%

2014 16,306 (11,354) 4,952 (1,229) 3,722 (96) 64 3,690 (1,069) 2,504 2014 611 47 1,278 18,558 946 2,299 2,128 6,721 11,837 2014 2,504 728 (606) 2,626 (3,037) (574) (3,611) (943) 1,704 45 887 (98) 709 611 2014 13.5% 21.2% 30.4% 22.8% 15.4% 0.3 38.7 1.1 30.4 39.0% 15.3 3.2 37.7%

2015F 15,474 (11,171) 4,304 (1,315) 2,988 (93) (1,215) 1,680 (453) 1,162 2015F 344 45 1,257 18,007 930 3,000 500 5,445 12,562 2015F 1,162 2,451 (52) 3,561 (2,759) 351 (2,408) (438) (927) (1,420) (267) 611 344 2015F 6.5% 9.2% 27.8% 19.3% 7.5% 0.3 32.1 1.1 30.4 -53.6% 35.4 3.3 37.7%

2016F 16,621 (12,075) 4,546 (1,413) 3,134 (93) (1,271) 1,770 (477) 1,224 2016F 813 48 1,359 18,916 1,005 3,000 500 5,591 13,324 2016F 1,224 2,899 (5) 4,118 (3,080) (138) (3,219) (461) (430) 469 344 813 2016F 6.5% 9.2% 27.4% 18.9% 7.4% 0.2 33.7 1.1 30.4 5.4% 33.6 3.1 37.7%

2017F 18,616 (13,100) 5,516 (1,582) 3,934 (93) (915) 2,926 (788) 2,023 2017F 1,823 54 1,475 20,513 1,091 3,000 500 5,927 14,585 2017F 2,023 3,380 26 5,429 (2,957) (770) (3,727) (762) (693) 1,009 813 1,823 2017F 9.9% 13.9% 29.6% 21.1% 10.9% 0.1 42.3 1.1 30.4 65.3% 20.3 2.8 37.7%

AALI’s revenue will only decrease by 2.2% on the back of a 2.4% reducing in CPO sales volume.

We expect cash will decrease this year which compared to previous year.

We expect AALI’s net profit margin will stand at single digit in 2015F and 2016F.

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Sucorinvest, rating definition, analysts certification, and important disclosure Ratings for Sectors Overweight Neutral Underweight

: We expect the industry to perform better than the primary market index (JCI) over the next 12 months. : We expect the industry to perform in line with the primary market index (JCI) over the next 12 months. : We expect the industry to underperform the primary market index (JCI) over the next 12 months.

Ratings for Stocks Buy Hold Sell

: We expect this stock to give return (excluding dividend) of above 10% over the next 12 months. : We expect this stock to give return of between -10% and 10% over the next 12 months. : We expect this stock to give return of -10% or lower over the next 12 months.

Analyst Certification The research analyst(s) primarily responsible for the preparation of this research report hereby certify that all of the views expressed in this research report accurately reflect their personal views about any and all of the subject securities or issuers. The research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.

Disclaimers This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. PT Sucorinvest Central Gani accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. PT Sucorinvest Central Gani and its directors, officials and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. PT Sucorinvest Central Gani may also seek investment banking business with companies covered in its research reports. As a result investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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Research Email 1. Maxi Liesyaputra Head of Research [email protected] 2. Andy Wibowo Gunawan Equity Analyst [email protected] 3. Vasthi Juwita Permata E Equity Analyst [email protected] 4. Inav Haria Chandra Equity Analyst [email protected] 5. Jefrix Kosiady Equity Analyst [email protected] 6. Achmad Yaki Y Technical Analyst [email protected]

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