8 August 2008
UNDERPERFORM Maintained(cimb)
RP18,900 Target: Rp19,000
Mkt.Cap: Rp29,763bn/US$3,274m
Dry spell..........................oil price of US$120 per barrel.
foreword(序言) is repeated please click here if you want to read
Valuation and recommendation
Adjusted earnings forecasts by +3 to -8%; lowered target price to Rp19,000. We have accounted for: 1) higher third-party FFB purchases in FY08, raising such purchases to 10% of total production from 8.5%, given 1H’s 10+% figure, and management indications of equally robust yields from plasma farmers; 2) higher average prices in rupiah terms stemming from a weaker currency than forecast in 1H and higher CPO price yields with respect to spot prices (quite consistent with past patterns during price increases); and 3) higher fertiliser costs given management’s indication that costs would rise another 20-30% in 2H. We expect fertiliser prices to stay high going into 2009, before softening in 2010.
All in all, we have upgraded our FY08 earnings forecast by 3%, but downgraded FY09-10 forecasts by 2-8%. We have also lowered our forward P/E target to 10x from 14x to account for rising downside risks to CPO prices. This is consistent with the average 3-year P/E for Indonesian plantation companies. Accordingly, our target price for Astra Agro drops to Rp19,000 from Rp27,000.
Retain Underperform. Other negatives include declining yields, as Astra Agro’s average estate age is 14 years old. Positive attributes remain its position as one of the lowest cost producers, its robust balance sheet and its strong free cash flow despite significantly more aggressive new planting plans.
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