Citigroup Astra Agro Lestari - Alert:9M09 and 3Q09 Results in a Snapshot

 9M09 top line in line – AALI's 9M09 CPO sales volume increased by 8.8% YoY to 767.9k tons (80.6% of Citi's FY09E of 953.3k tons) and helped cushion the negative impact of the 20.8% YoY drop in its average CPO price to Rp6,336/kg. Overall revenues decreased by 18.4% YoY to Rp5,463bn but is still more or less in line with expectations (73.2% of Citi FY09E and 75.4% consensus).

 Higher CPO sales volume also helped minimize declines in 3Q09 revenues – The 2.2% QoQ and 19.5% YoY increase in CPO sales volume to 273.9k tons helped prevent a substantial deterioration in revenues as a result of the 12.5% QoQ and 15.1% YoY decline in average CPO prices to Rp6,247/kg. AALI's overall 3Q09 revenues only declined 9.6% QoQ and 6.2% YoY.

 Lackluster 9M09 margins performance – The impact of lower CPO prices YoY was also reflected in margins. Gross margin in 9M09 was down to 41.3% from 50.9% in 9M08. Gross profit was 33.8% lower YoY at Rp2,255.3bn. 9M09 OPEX was 14.5% higher YoY at Rp342.5bn, primarily due to higher tax expenses and salaries and employee benefits. This led to a 38.5% YoY decline in operating profit to Rp1,912.9bn. Operating margin at 35% dropped from 46.4% last year.

 But lower fertilizer costs provide support to 3Q09 margins – Back in 1H09, AALI's fertilizer costs were still high since prices were still blended with 2008 prices (AALI still had excess fertilizer inventory from 2H08 to early 2009 when it scaled down its expansion plans back in 2008). In 2H09, we anticipate lower fertilizer costs. The 7.4% QoQ and 11.3% YoY lower COGS in 3Q09 support our view (Fertilizer costs typically accounts for 30%-40% of COGS). Margins saw only slight declines (3Q09 Gross Margin, Operating Margin, Net Profit Margin of 45.5%, 39.3% and 24.8% vs. 2Q09's 46.8%, 41.2% and 25.9% respectively).

 Bottom line dragged down by forex loss – AALI still has US$87.5m sitting in its B/S, the bulk of which is mainly from the US$60m paid to AALI by Adaro as part of the settlement agreement to the hectarage overlapping issue. Meanwhile, the rupiah has strengthened from Rp10,900 (Dec 31, 2008) to Rp9,663 (Sept 30, 2009). Consequently, AALI reported a forex loss of Rp85.6bn. Overall net profit in 9M09 dropped 41.4% to Rp1,248.1bn (60% Citi FY09E; 64% consensus).