Danareksa AKR Corporindo (AKRA IJ, Rp830 BUY) Strong sales volume growth ahead

Reinitiate coverage with BUY, TP of Rp1,100, 33% upside potential
We reinitiate our coverage on AKR Corporindo (AKRA) with a BUY recommendation and target price of Rp1,100, implying 16.7-13.6x FY09-10 P/E. We estimate 10F-11F EPS growth of 23%-33%, mainly supported by expansion in the petroleum and logistics businesses. Currently the stock is traded at a FY09 PE of 11.8%

The new Kalimantan operation shall drive sales volume higher
We expect AKRA’s petroleum sales volume to grow by around 56% this year, supported by its new operation in Kalimantan. We believe AKRA is well placed to boost sales given the 3.6 million Kl/year fuel demand in Kalimantan. Its tank facilities should enable the company to deliver on a timelier basis, and having its own inland transportation should minimize transportation costs. We expect the increase in sales volume to more than offset the lower fuel prices. AKRA’s tanks and inland transportation should give the company a competitive edge.

SOBI’s efficiency program should boost gross margins
This year, SOBI will contribute a large chunk of AKRA’s net income (around 44% in our estimates). Looking ahead, we expect SOBI’s efficiency program to help drive earnings growth. In 2011, the new starch plant with capacity of 30,000 MT per annum should help boost SOBI’s gross margin to 29%. As for the first quarter results, they show good performance. Due to better than expected ASP in 1Q09, net earnings reached 31% of our full year forecast.

JTT should boost revenues from the logistics business by 55% Y-o-Y in 2010
We believe the management’s confidence in JTT is justified since the land in Tanjung Priok is fully occupied and there are currently no other tanks that are available for rent. As such, JTT should not face much competition. Moreover, its location in Tanjung Priok offers easy access to the sea. In 2010, we expect JTT to contribute Rp 186 billion of revenues to AKRA. This should add Rp13.5bn-Rp24bn to AKRA’s 10F-11F net income. To finance construction of the project, JTT took on a USD 60mn long-term loan facility in early May 2009. Given JTT’s higher gross margin of around 45%, we think the company will have little difficulty in repaying the financing debt.