AKR Corporindo reported FY09 net income of Rp275bn (+30.8%yoy, +1.9%qoq), which is in line with our estimate. Despite declining ASP, the company was able to grow by relying on sales volume increase. The company is in expansion mode by franchising subsidized fuel gas station and by expanding industrial fuel tank storage, using right issue proceeds of Rp540bn. We believe the company will continue its growth as chemical and fuel ASP started to rise in1Q10. We maintain Buy on AKRA with TP of Rp1,300/share, providing 39.8% upside potential from current price.
FY09 results were in line with expectation. The company booked revenue and earnings of Rp9.0tn (-5.4% yoy) and Rp275bn (+30.8% yoy), respectively as of FY09. Bottom-line figure represented some 98% and 94% of our and consensus estimates. Its FY09 growth was mainly due to higher sales volume, despite of lower ASP. We view it positively as sales volume is the real indicator of the company’s performance, while ASP is outside the company’s control. Industrial fuel sales volume rose by 53%yoy due to new customers from Kalimantan mine rs while basic chemical sales was flat with 2% yoy growth.
In an expansion mode. The company’s decision to enter into subsidized fuel business has long-term horizon, as the government is going to reduce fuel subsidy in 2014. To capture the opportunity, the company is striving to build customer base in the next 4 years. Therefore, it chose franchise model in retail gas station expansion because it needs minimum investment from the company itself, while allocating capex to build bigger scale tank storages (+26.2%) to develop industr! ial fuel business. Now, it’s expanding industrial fuel business to Sulawesi area to serve mining companies there. For sorbitol business, it also does backward integration by building a tapioca starch plant.
Good business continuity. The company’s fuel distribution business exists because of lack of domestic refining capacity. We believe this condition will linger because huge investment needed to build a refinery will cap capacity addition. This condition makes it is more economically beneficial to import fuel rather than to refine it domestically. In addition to that, fuel distribution business also has considerable entry barrier as it needs significant investment to prepare tank storages and other infrastructure, not to mention a very limited areas suitable! for logi stic port. Pertamina’s request to increase fuel distribution margin (therefore, ASP), will also help improve AKRA’s competitiveness.
Reiterate Buy. We reiterated our Buy recommendation as the company has a clear vision and strategy in short and long term. 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 10.4-8.1x.
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