Mandiri Sekuritas AALI: Proven productivity

Astra Agro Lestari (AALI)’s 9M09 CPO production was up by 6.9% yoy to 786k tons due to significantly higher FFB production in Kalimantan and Sulawesi. As a result, though CPO selling price was slightly lower in 3Q09, total sales jumped by 56.6% qoq. In total, 9M09 revenue reached Rp5.5tn (-18.4% yoy), while earnings hit Rp1.2tn (-41.4% yoy). We are upgrading our forecast and TP of Rp22,000/share, factoring higher CPO production as we believe the company could optimize its productivity moving f! orward. T hough we like AALI’s fundamentals, we view the upside is limited since the stock currently is trading at demanding valuations (PER09F-10F of 18.1x-16.0x). Thus, we maintain our neutral stance on the stock.

9M09’s earnings: in line with ours, but slightly below consensus. AALI reported 9M09 revenue of Rp5.5tn (-18.4% yoy) along with lower average CPO selling price (Rp6,336/kg in 9M09 vs Rp7,995/kg in 9M08). At the bottom-line level, AALI posted larger drop of around 41.4% to Rp1.2tn. The results represented around 71.2% of our and 66.2% of market consensus forecasts. Note that AALI booked Rp86bn of forex losses in 9M09 as around 80% of its cash and cash equivalent were denominated in the US$. Therefore, since we are a believer of the rupiah appreciation, we foresee some forex losses of Rp78bn and Rp16bn for FY09F and FY10F.

CPO production up by 6.9% yoy. AALI could still increase its CPO production to 786k tons in 9M09 (+6.9%yoy) despite its maturing plantation profile (average age of 14 years). This is due to substantial higher FFB production in Kalimantan and Sulawesi, which grew by 24.1% and 7.2% respectively. As of 9M09, FFB production in Kalimantan and Sulawesi has already represented around 55% of total FFB production. These areas would be the keys for production growth in the future, in our view , due to the maturing plantation profile.

Upgrading our CPO production and earnings estimates. Given the substantially higher CPO production in 3Q09, we upgraded our CPO production assumption to 1,026k and 1,075k tons in FY09F-10F. We view this as achievable as harvest will likely to improve in the 4Q09 with assumption of minimum El Nino risk. Moreover, with the upcoming 3 new mills in Kalimantan and Sulawesi, AALI could optimize its CPO production while the plantation enters the peak cro! ps. Conse quently, our earnings estimates would also positively change by 3.3% and 2.2% to Rp1.8tn and Rp2.1tn in FY09F-10F, respectively.

Maintain our stance with higher TP of Rp22,000/share. We upgraded our target price to Rp22,000/share (DCF based, 13.2% WACC and 5.0% TG), factoring higher CPO production assumptions. Though we like the company’s fundamentals, we view the upside is limited as the stock already trades at pricey valuation (PER09F-10F of 18.1x-16.0x). Thus, our neutral recommendation for the stock.