AKR Corporindo reported 1Q10 net income of Rp70bn (+60.9%yoy, -15.2%qoq). QoQ net income contraction was due to rising raw material price, the Rupiah’s appreciation which hurt export revenues, and lower fuel sales volume. We expect raw material price to stabilize in 2H10. Our economist also predicts limited upside in the Rupiah’s exchange rate from the current level. Fuel sales volume is expected to rise due to the company’s aggressive marketing to gain new clients. The opening of the Jakarta Tank Terminal and the upward integration of Sorini into cassava flour mills will be the catalysts going forward. We maintain Buy recommendation on AKRA with TP of Rp1,300/share, providing 25.0% upside potential from the current price.
1Q10 results, below expectations. The company booked 1Q10 revenue and earnings of Rp2.4tn (+32.6% yoy, -8.3%qoq) and Rp70bn (+60.9% yoy, -15.2%qoq). Bottom-line figure represented 21% and 18% of ours and consensus FY10F estimates. YoY growth was mainly due to volume growth in all segments, combined with ASP growth, except for basic chemical trading. QoQ contraction was due to volume contraction from fuel division, rising raw material p! rices (ca ssava) as a result of low replanting in 1H09, and the rupiah’s appreciation that hurt export revenues.
2H10 should be better. Sorini’s sales (AKRA’s subsidiary) actually grew during 1Q10 in US$ terms. However, due to the strengthening of the Rupiah, the company reported lower Rupiah equivalent revenues. Rupiah’s average rate was Rp9,262/US$ in 1Q10, while our economist predicts FY10F rate at Rp9,112/US$, therefore, we see limited translation downside for the rest of FY10. The company’s local sa! les porti on also increased from 44% in 1Q09 to 54% in 1Q10. We expect lower cassava price in 2H10 as farmers did normal replanting in 4Q09. Note that cassava will mature in 9 months. From its fuel division, the company is expanding customer base into Sulawesi area. In terms of ASP, we expect it to be higher along with economic recovery and higher crude oil prices.
Continuous expansion. AKRA commenced Jakarta Tank Terminal (JTT) operation earlier this month. JTT will be a key success factor in this volume- driven business. With current capacity of 250k kl, JTT is the first and largest privately-owned fuel storage in Indonesia. They plan to double JTT capacity in the next couple of years. Sorini is also soon to be a vertically integrated company in 2011 by acquiring 4 cassava flour mills (currently, 15% of raw material is from third party suppliers).
Reiterate Buy. We reiterated our Buy recommendation as the company remains in expansion mode, despite operating in a stable business. It’s operating in a very big Indonesian fuel market with spacious room to grow. We maintain our TP at Rp1,300/share (11.9% WACC). The stock is trading at PER10-11F of 11.7-9.0x.
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