DBS AALI FULLY VALUED

Excluding one-off gain from sale of overlapping estates, Astra Agro Lestari (AALI) FY08 net profit was slightly below forecast, due to higher-than-expected operating expenses. 4Q08 revenue edged down by 28.6% q-o-q, as the 15.4% jump in CPO sales volume helped to mitigate 34.3% fall in ASP. We are keeping our cautious outlook on both volume and price over the coming quarters. Considering the lofty multiples at which AALI is currently trading, we reiterate our Fully Valued call on the stock, with TP of Rp7,175, implying 10.8 FY10F PE.

Stripping out one-off net gain Rp282.3b from the sale of its overlapping estate to Adaro, AALI’s FY08 net profit was Rp2.3tn, c.5.7% lower than forecast. This was mainly due to higher than expected operating expenses, which in addition to high freight rates earlier in the year, we believe were attributable to year-end bonuses. Excluding the gains, 4Q08 net profit would have dropped by 58.9% q-o-q to Rp218.8b, reflecting the 64.5% lower operating profit.

Previously, AALI had booked the Adaro’s payment in other payables, as it had not been
required to handover the sold estates until 2012. However, we believe the auditors have now advised them to recognize the gains in FY08.

The group’s 4Q08 operating cash flow was negative. We suspect this was mainly due to prepayment of fertilizers. Overall, net change in cash flow was also negative due to Rp505 dividend payment and capex spending of c.Rp356b. Judging by its cash level, we believe AALI may have to cut its final dividend payout from our assumption of Rp1.2tn.

We have yet to impute maximum tax rate of 28% (from current 30%) for FY09, pending further clarity on the new regulation. For now, we maintain our Fully Valued call on valuation concerns.