Astra Agro Lestari (AALI), the plantations business owned 80% by Astra International (ASII), reported its Q110 result after market yesterday.
The AALI result was a mixed bag: Palm oil price increases gave rise to strong growth in operating profits, but higher than expected COGS and FX losses meant that the bottom line was a disappointment v. consensus.
The result in itself isn’t that significant. However, it is likely to remind investors that have bid ASII to the heady heights at which it now trades that the business is a conglomerate, consisting of a fast growing automotive business (held at the parent level), a 60% owned listed heavy equipment business (UNTR), an 80% stake in a volatile (albeit cash cow) plantations business (AALI) and assorted other assets (office equipment through ASGR, banking through BNLI, car and motorcycle parts through AUTO).
This structure begs two questions:
How is ASII currently trading v. its NAV?
What sort of a conglomerate discount does ASII deserve?
The first question we can answer, thanks to some help from analyst Johannes Salim:
My PT of Rp46,500 is NAV assumes a DCF valuation for the automotive/motorcycles business, then market cap of the listed subsidiaries. .
Adjusting for yesterday's closing price of UT and Astra Agro, it is Rp49,000/share.
In other words, with the stock price currently at Rp45,450, the discounts to our PT and current NAV (adjusted for market prices) are small: 2% and 7% only.
The answer to the second question we’ll leave to Johannes and the market to decide. What do you think? Is 7% sufficient?
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