Revised Up TP to Rp. 10.135 – Susceptible of Profit Taking, Buy on Weakness
Phenomenal performance result amid financial turmoil
AALI has booked phenomenal FY08 unaudited result amid financial turmoil and plunge in commodity price. This indicated that AALI still prominently lead the sector even though CPO industry’s prospect in 2009 has been predictably bleak in global market.
CPO Production and Sales grew 6,6% and 13.2% respectively
CPO production FY08 reached 981,538 tons followed with total sales volume reached 970,728 tons or 98,8% of total production. Those CPO production and sales volume have grown 6.6% YoY and 13.2% YoY respectively compared to FY07. Beside that the ASP for FY08 reached Rp 7,134 per kg or rose 18.9% from Rp 6,002 per kg for FY07. And for local or domestic market sales grew 21% reached 860,114 tons or 88.6% from total sales.
CPO Production and Sales in line with our estimation
CPO production and sales actual numbers in line with our estimation which reached 986.768 tons and 967,034 tons which were slightly different around 0.5% from our previous estimation. AALI has realized 99.6% its CPO production from the target of 990,000 tons. Mean while, our ASP estimate of Rp 7.461/kg was 4.6% above the actual ASP of Rp 7.134/kg
CPO industry update: a Glance
As we predicted, CPO industry is still doing well and good amid global recession. It has been proved and reflected from the India’s import that grew significantly in December 2008 up to 486k ton. Beside that Government of India will not reinstate and plan to extend duty free import for the CPO that would support its rally in Malaysia and Indonesia as well. This is in line with our expectation that CPO price would find its new stable price level at range US$ 500 – US$ 550/Mt.
Mean while, there is also a positive catalyst for the increase tracking of CPO price as drought damages soybean oil crops in Argentina. Thus CPO futures price gained after Argentina’s government cut its forecast for soybean planting this year because of the worst drought in at least four decades.
Looking the potential side based on historical Statistic trend: AALI vs JCI
Based on our historical statistic result since 2003, average price for AALI and JCI arrive in Rp 7,915 and 1348 respectively. And from the historical P/E movement we get AALI’s P/E average at 11.3x with 6.5x standard deviation and JCI’s P/E average at 14.4x with 4.5x standard deviation. As seen from the graph in exhibit 3 and 4, there are still upside potential room for both.
Valuation and Recommendation
We have reevaluated and adjusted our key based assumptions especially related to exchange rate and performance expectation of AALI in 2009 and 2010. Beside that, we also change some assumptions related to WACC calculation considering current market condition as follows :
- Risk free = 12% (previous was 13,5%)
- Risk premium = 6,5% (remain the same)
- Beta market = 1,3x (previous was 1,4x)
- Terminal growth = 5 % (remain the same), and
- Target Debt Ratio = 10% (remain the same)
Based on our valuation and analysis we get our new TP of Rp 10,135 per share derived from our DCF-based valuation method with WACC 19%. Even though we get our TP below last trading price of Rp 11,050 (-8.2%), considering the potential upside from the statistic, the valuation and considerable of profit taking momentum, we recommend Buy on weakness.
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