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AKR Corporindo (AKRA IJ) (Buy) - Conservative outlook

AKR Corporindo (AKRA IJ) (Buy) - Conservative outlook

Plantation JT DT GH 363 27th Dec, 2024

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Conservative outlook

Maintain Buy with a lower TP of IDR1,700; we cut earnings by 20%/12%/5% for FY24F/25F/26F

We reduce FY24F/25F/26F earnings estimates by 20%/12%/5.1% as JIIPE (Java Integrated Industrial and Port Estate) land sales are lower than our initial expectation and mining production is sluggish. We expect lower land sales in 4Q24F (only 5 hectares [ha] vs previously 60-70ha) as the company has not provided any updates on large land sales in 4Q despite 2024 coming to an end. Thus, we believe sizeable land sales, if any, would come only in 2025F. However, we believe the delay is already largely priced in, as AKRA share price has declined 23% YTD, underperforming the JCI Index which declined 2.4%. Hence, we retain our Buy rating with a lower TP of IDR1,700.

Weak outlook this year before recovering in 2025F-2026F

We trim 2024F land sales estimate to 37ha (previously 110ha), which reflects slower rollouts of foreign projects, in our view. We believe 2025F and 2026F land sales could improve to 60ha and 80ha, respectively, as we are positive on China's outbound investment flows (ODI). We believe JIIPE still has a competitive edge given its integrated industrial estate business model with deep-sea port, robust utilities, and having Freeport (FCX US, NR) as its anchor tenant (see our report on JIIPE here and here).

Sluggish purchasing power hampers trading business

Indonesia's PMI in September remained below 50 for the third consecutive month, and would likely remain so till end-2024F, indicating soft purchasing power, in our view. Heavy rainfall further hampered the coal market, as production increased only 0.6% y-y in 3Q24 and coal price extended its decline by 12% yoy in Dec-24. Note that mining companies typically contribute almost half of AKRA’s trading volume, and thus the weakness in mining segment may contribute to the weakness in AKRA’s business.

Maintain Buy with new TP of IDR1,700, implying 50% upside

We cut our TP to IDR1,700, still based on the SOTP methodology (Fig. 5). We value its trading and distribution business using a target FY25F P/E of 9x (vs 10x earlier). Its manufacturing & logistics and utilities business is valued using DCF, assuming a WACC of 10% and terminal growth of 1%. The industrial estate business is valued using a discount to NAV of 30%, incorporating reduced earnings visibility in JIIPE and coal trading—though an eventual improvement regarding China's ODI is an upside risk. Currently, the stock is trading at 8.8x FY25F P/E. Downside risks: 1) lower-than-expected volume for its trading & distribution business and 2) unfavorable dynamics, with significant oil supply and lower commodity prices.


Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
Revenue (bn)42,08740,96737,47644,77040,92747,70144,083
Reported net profit (bn)2,8002,6782,1492,9052,5653,1472,994
Normalised net profit (bn)2,8002,6782,1492,9052,5653,1472,994
FD normalised EPS139.50133.40107.08144.72127.80159.42151.67
FD norm. EPS growth (%)15.1-4.4-23.28.519.310.218.7
FD normalised P/E (x)8.1–10.6–8.8–7.5
EV/EBITDA (x)6.1–7.5–5.7–4.4
Price/book (x)2.0–1.9–1.8–1.6
Dividend yield (%)11.1–7.7–6.9–7.9
ROE (%)25.223.218.724.021.024.822.5
Net debt/equity (%)net cashnet cashnet cashnet cashnet cashnet cashnet cash
Source: Company data, Verdhana estimates

Key data on AKR Corporindo

Income statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Revenue
47,540
42,087
37,476
40,927
44,083
Cost of goods sold
-43,288
-37,613
-34,255
-37,038
-39,643
Gross profit
4,252
4,473
3,221
3,889
4,440
SG&A
-1,166
-823
-768
-839
-904
Employee share expense
Operating profit
3,087
3,651
2,453
3,050
3,537
EBITDA
3,479
3,841
2,922
3,550
4,071
Depreciation
-393
-190
-470
-501
-535
Amortisation
EBIT
3,087
3,651
2,453
3,050
3,537
Net interest expense
-8
128
199
122
171
Associates & JCEs
Other income
7
-91
35
35
35
Earnings before tax
3,086
3,687
2,687
3,207
3,742
Income tax
-545
-589
-403
-481
-561
Net profit after tax
2,541
3,098
2,284
2,726
3,181
Minority interests
-76
-298
-134
-160
-187
Other items
Preferred dividends
Normalised NPAT
2,465
2,800
2,149
2,565
2,994
Extraordinary items
Reported NPAT
2,465
2,800
2,149
2,565
2,994
Dividends
-829
-2,467
-1,720
-1,539
-1,796
Transfer to reserves
1,636
333
430
1,026
1,197
Valuations and ratios
Reported P/E (x)
9.2
8.0
10.4
8.7
7.5
Normalised P/E (x)
9.2
8.0
10.4
8.7
7.5
FD normalised P/E (x)
9.3
8.1
10.6
8.8
7.5
Dividend yield (%)
3.7
11.1
7.7
6.9
7.9
Price/cashflow (x)
8.7
6.5
6.2
6.1
5.2
Price/book (x)
2.0
2.0
1.9
1.8
1.6
EV/EBITDA (x)
6.8
6.1
7.5
5.7
4.4
EV/EBIT (x)
7.6
6.4
8.9
6.6
5.1
Gross margin (%)
8.9
10.6
8.6
9.5
10.1
EBITDA margin (%)
7.3
9.1
7.8
8.7
9.2
EBIT margin (%)
6.5
8.7
6.5
7.5
8.0
Net margin (%)
5.2
6.7
5.7
6.3
6.8
Effective tax rate (%)
17.7
16.0
15.0
15.0
15.0
Dividend payout (%)
33.6
88.1
80.0
60.0
60.0
ROE (%)
24.3
25.2
18.7
21.0
22.5
ROA (pretax %)
14.1
15.7
10.5
13.0
14.3
Growth (%)
Revenue
84.9
-11.5
-11.0
9.2
7.7
EBITDA
97.9
10.4
-23.9
21.5
14.7
Normalised EPS
113.5
15.1
-23.2
19.3
16.7
Normalised FDEPS
110.7
15.1
-23.2
19.3
18.7
Source: Company data, Verdhana estimates
Cashflow statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
EBITDA
3,479
3,841
2,922
3,550
4,071
Change in working capital
-158
633
1,058
649
757
Other operating cashflow
-692
-971
-304
-485
-543
Cashflow from operations
2,629
3,502
3,677
3,715
4,286
Capital expenditure
-411
-660
-331
-435
-472
Free cashflow
2,218
2,842
3,346
3,279
3,813
Reduction in investments
-16
-29
0
0
0
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
409
33
0
0
0
CF after investing acts
2,611
2,846
3,346
3,279
3,813
Cash dividends
-829
-2,467
-1,720
-1,539
-1,796
Equity issue
Debt issue
-9
1,584
0
0
0
Convertible debt issue
Others
-36
235
-754
392
404
CF from financial acts
-873
-648
-2,474
-1,147
-1,393
Net cashflow
1,737
2,198
872
2,132
2,421
Beginning cash
2,600
4,338
6,536
7,407
9,539
Ending cash
4,338
6,536
7,407
9,539
11,960
Ending net debt
-1,374
-1,987
-2,859
-4,991
-7,411
Balance sheet (IDRbn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash & equivalents
4,338
6,536
7,407
9,539
11,960
Marketable securities
Accounts receivable
6,020
6,460
6,127
7,100
8,089
Inventories
5,221
4,754
4,330
4,682
5,011
Other current assets
262
371
371
371
371
Total current assets
15,841
18,121
18,235
21,692
25,430
LT investments
417
446
446
446
446
Fixed assets
4,997
5,466
5,329
5,264
5,202
Goodwill
Other intangible assets
Other LT assets
5,932
6,221
6,221
6,221
6,221
Total assets
27,188
30,255
30,230
33,623
37,299
Short-term debt
556
1,094
1,094
1,094
1,094
Accounts payable
9,662
10,319
10,619
12,593
14,668
Other current liabilities
1,062
1,120
1,120
1,120
1,120
Total current liabilities
11,280
12,533
12,834
14,807
16,883
Long-term debt
2,408
3,454
3,454
3,454
3,454
Convertible debt
Other LT liabilities
344
224
224
224
224
Total liabilities
14,033
16,212
16,512
18,486
20,561
Minority interest
2,186
2,780
2,026
2,418
2,822
Preferred stock
Common stock
1,689
1,689
1,689
1,689
1,689
Retained earnings
9,094
9,397
9,827
10,853
12,050
Proposed dividends
Other equity and reserves
186
177
177
177
177
Total shareholders' equity
10,969
11,263
11,693
12,719
13,916
Total equity & liabilities
27,188
30,255
30,230
33,622
37,299
Liquidity (x)
Current ratio
1.40
1.45
1.42
1.46
1.51
Interest cover
379.3
–
–
–
–
Leverage
Net debt/EBITDA (x)
net cash
net cash
net cash
net cash
net cash
Net debt/equity (%)
net cash
net cash
net cash
net cash
net cash
Per share
Reported EPS (IDR)
123.23
141.87
108.90
129.98
151.67
Norm EPS (IDR)
123.23
141.87
108.90
129.98
151.67
FD norm EPS (IDR)
121.20
139.50
107.08
127.80
151.67
BVPS (IDR)
555.75
570.63
592.41
644.40
693.26
DPS (IDR)
42.00
125.00
87.12
77.99
89.48
Activity (days)
Days receivable
40.4
54.1
61.5
59.0
62.9
Days inventory
41.0
48.4
48.5
44.4
44.6
Days payable
74.6
96.9
111.9
114.4
125.5
Cash cycle
6.8
5.6
-1.9
-11.0
-18.0
Source: Company data, Verdhana estimates
Company profileAKRA was established in 1960, in 1977 the firm is formally incorporate under the name “Aneka Kimia Raya”. AKRA engages in 4 business segments: 1) Trading and distribution of petroleum and basic chemicals 2) Industrial estate -- in Java Integrated Industrial and Ports Estate (JIIPE) located in Gresik, West Java, Indonesia. 3) Logistic services. 4) Manufacturing segment
Valuation MethodologyAKRA's TP of IDR1,700 is derived from SOTP methodology. For it's trading and distribution business, we value it using target P/E of 9x. For its manufacturing & logistics and utilities business are valued using DCF with a WACC of 10%. It's industrial estate business is valued using discount to NAV of 30%. The benchmark for the stock is JCI.
Risks that may impede the achievement of the target priceDownside risks to our call include: 1) lower-than-expected volume for its trading & distribution business; 2) unfavorable dynamics, with abundant oil supply and lower commodity prices; 3) lower-than-expected ASP for its chemical business; and 4) delayed customer acquisition strategy for JIIPE.
ESGThe implementation of ESG aspects moved towards the initiation strategy for the development of a cleaner energy business (JV Gas Distribution). AKRA’s shares in 2021 were included in various well-known ESG Indexes: 1) ESG Leader Index, 2) Sri Kehati Index, 3) ESG Starlist Company, 4) ESG Quality 45 IDX KEHATI. AKRA's best ESG practices can be seen in its health & safety (12.565.738 hours without incident in 2021), opportunity equality (43% director level, 21% management level), and 0 environment complaint in 2021.
Fig. 1: Indonesia’s coal production: drop in PMI in all three months (Jul-Sept) to below 50

Source: CEIC, Verdhana research

 

Fig. 2: Indonesia coal production — limited short term growth due to severe weather conditions

Source: MODI, Verdhana research

 

Fig. 3: Coal ICI-4 prices — down 12% yoy

Source: Company data, Verdhana research

 

Fig. 4: AKRA’s trading & distribution gross profit trend

Source: Company data, Verdhana research

 

Fig. 5: AKRA— valuation methodology

AKRA's  SOTP valuationMethodEVOwnershipOwnership adj-EV
Trading & distribution (T&D)Target P/E 9x        17,811100%                           17,811
Manufacturing & logisticsDCF (WACC 10%, TG 1.0%)              880100%                                 880
Industrial estateDisc to NAV - 30%        12,74260%                             7,645
UtilitiesDCF (WACC 10%, TG 2.5%)          6,35960%                             3,815
                            30,151
 Net debt (cash) - ex T&D (IDR bn)                           (4,480)
 Equity value (IDR bn)                           34,631
 #shares                           20,073
   TP (IDR/share)                             1,700
Source: Company data, Verdhana estimates

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.


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ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


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Rating Table

Rating
Remains
Buy
Target price
Reduced from IDR 1,900
IDR 1,700
Closing price
23 December 2024
IDR 1,130
Implied upside+50.4%
Market Cap (USD mn)1,402.8
ADT (USD mn)2.1

Relative performance chart

Source: LSEG, Verdhana
M cap (USDmn)
1,402.8
Free float (%)
38.7
3-mth ADT (USDmn)
2.1
(%)
1M
3M
12M
Absolute (IDR)
-13.4
-25.7
-22.1
Absolute (USD)
-15.0
-30.1
-25.4
Rel to Jakarta Stock Exchange Composite Index
-12.0
-16.9
-20.1

Research Analysts

Jupriadi Tan (jupriadi.tan@verdhana.id), 

David Tjahjadi (david.tjahjadi@verdhana.id)

Gerald Hugo (gerald.hugo@verdhana.id)

Tags: POWER, UTILITIES, AKRA, AKRA JK, AKRA IJ, Jupriadi Tan, David Tjahjadi, Gerald Hugo
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