CITI AALI BUY: January 2009 Key Operating Statistics

BUY: January 2009 Key Operating Statistics

Whether weather matters… — AALI's plantations in Sulawesi enjoyed more rainfall compared to its plantations located in Kalimantan and Sumatra. As such, FFB harvested from Sulawesi area in January 2009 rose 4.3% YoY to 69.2k tons and helped minimized the impact of lower FFB harvest from both
Sumatra (-8.1% YoY to 158.1k tons) and Kalimantan (-36.8% YoY to 74k tons, although +3.1% MoM).

Lower CPO production in January 2009 but expected — Following the 9.3% drop in FFB processed, CPO production also fell 11.8% YoY. This is unsurprising given the seasonality factor. Additionally, we view that one month is still too early to form a reasonable pattern. We will revisit our CPO production assumption of 1m (+2.3% YoY) tons for FY09E post 1Q09E.

Valuation getting expensive? — Compared to its Indonesian peers AALI’s valuation may appear expensive at 11x 2009PE. However, AALI's size easily dwarfs its Indonesian plantation peers and as such we think it should trade closer to its Malaysian peers (c.13x 2009E) instead of at a discount.

Maintain Buy (1H, TP: Rp14,150) — Since its low of Rp4,600 (October 2008), AALI has risen +163% to above Rp12,000. Its strong balance sheet (net cash position), simplicity in business structure, sound management, decent dividend yield, and high ROE lends it a defensive stance and we think there is still room for AALI's stock price to move towards our target price of Rp14,150. As a pure CPO play, AALI would benefit from any upward movement in CPO prices.