CLSA Aneka Kimia Raya (AKRA IJ), OPF, TP Rp1600

Research Associate Vera looked at Aneka Kimia Raya (AKRA IJ). The stock has gone up 30% since the placement that we did in Feb 2010.

At this point, we still like the stock and believe that it still deserves an OPF rating. Out TP is Rp1600, implying 15x 2011 PER. Despite disappointing 2Q10 results, a recovery is expected in 2H10 while further positive developments in the form of additional govt contracts next month could further boost her bullish thesis. AKRA has the first mover advantage in non-subsidized petroleum distribution business.

The subsidiary Sorini (SOBI IJ), generating almost half of AKRA gross profit in 2009, has seen some margin squeeze in 1H10 thanks to rising input costs and rupiah appreciation. Gross margin dropped from 32% to 20% in 2009. Vera believes that margin pressures will ease going forward as the company renews the sorbitol contract at higher prices (time lag effect).