AKRA delivered weak 9M24 result as expected, due to the weak trading business as a result of declining purchasing power (PMI below 50 in three straight months) - as highlighted in our report (see here). However, we also highlight that the controlling shareholder has been buying back AKRA stocks using dividends received. Indeed, we note that approximately 46% of dividends received from the company has been used to buy back the stock, suggesting a high level of confidence from management.

Recap for 9M24 results:

Gross profit level for 9M24:

1) Trading business at IDR1.7tn (-22% yoy), due to a shift in the consumer segment amid weak purchasing power, and

2) Industrial estate at IDR549bn (+5% yoy) with land sales of 34ha in 9M24 vs 30ha in 9M23. We expect 4Q24F at 70-80ha.

Utilities revenue for 9M24 jumped 3x to IDR176bn vs 9M23 at IDR49bn as Freeport (unlisted) started operation. We expect utilities to contribute c.6% of FY25F gross profit.

Significant cumulative stealth buyback

Since 2020 to date, AKRA has disbursed a total IDR6tn of dividend (average payout 66%) of which IDR3.6tn has been distributed to the controlling shareholder. During the same period, controlling shareholder has bought back IDR1.6tn of AKRA shares, equivalent to 6% of the company’s sharesand represented 45% of the dividends payout. We view this as positive and a sign of high confidence from controlling shareholder.

Short-term hiccups, but maintain Buy

In our view, potential catalysts in 2025F include: 1) utilities revenue in industrial estate ramping up, contributing c. 6% of gross profit; and 2) government measures to reduce subsidy (see here) to open more market for AKRA. Our TP of IDR1,900 is derived from SOTP methodology. For it's trading and distribution business, we value it using a target P/E of 10x. For its manufacturing & logistics and utilities business, we value it using DCF with a WACC of 10% and terminal growth of 2.5%. Its industrial estate business is valued using a discount to NAV of 30%.

Fig. 2: Quarterly utilities revenue

Fig. 3: Quarterly trading business gross profit (nominal)

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. 

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Jupriadi Tan (jupriadi.tan@verdhana.id) 

Gerald Hugo (gerald.hugo@verdhana.id)