Morgan Stanley AALI

ASTRA AGRO LESTARI (AALI.JK): MORE CONSERVATIVE LT OUTLOOK; MAINTAIN EW What's Changed Price Target: Rp12,000 to Rp10,500Average FY2009-11e EPS : Up 55%We retain our EW rating on Astra Agro Lestari (AALI) with a new target price of Rp10,500/share, implying 5% downside from the current price. The TP revision is based on: 1) higher rupiah exchange rate assumptions against the US dollar; 2) less aggressive land bank acquisitions and new palm planting program; and 3) flat productivity of the estates in the medium term. While we upgrade AALI's 2009-11e earnings by 55%, which is now 15% ahead of the consensus, we downgrade AALI's long-term total planted area by 27%, resulting in lower DCF-based target price for AALI stock despite the more positive near-term earnings revision. We advise investors to revisit the counter in 2Q09 ahead of the seasonal CPO price strength in 3Q09. We expect CPO price to weaken as we go into 2Q09, given seasonal demand factors, uncertain global macroeconomic outlook, and higher-than-expected CPO supply. We expect attractive buying opportunities in 2Q09 and advise investors to build up positions in AALI ahead of the celebration of Ramadan and Eid Al-Fitr in August-September.
Key risks to our call on AALI stock: 1) lower realized average CPO price below US$550/ton in 2009e, driven by weaker-than-expected consumption growth due to prolonged weakness in the global economy; 2) steep appreciation of the rupiah against the US dollar, causing AALI's rupiah-based earnings to fall; and 3) negative surprises on AALI's CPO production volume amid weaker-than-expected estate productivity levels.