Astra Agro Lestari

Rising downside risk for CPO prices
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.

Receives RM33m Modipalm contract

BUY
RM4.20
Target Price: RM5.60
13 June 2008
ambg.com.my

YE to Dec FY07 FY08F FY09F FY10F
EPS (sen) 32.8 47.0 64.0 63.8
PE (x) 12.8 8.9 6.6 6.6

CB Industrial Product Holding Bhd (“CBIP”) has received a Letter of Award from PT Astra Agro Lestari for the construction of a 45 tonnes/hour Modipalm mill. The contract value is RM32.6m. This is the third Modipalm mill contract that PT Astra Agro Lestari has awarded to CBIP.

Also, this is the second contract that CBIP has secured this year. So far this year, CBIP has received RM60.3m worth of contracts. The other contract was awarded by Lembaga Tabung Haji (“LTH”) in April. LTH’s contract was in respect of the construction of a kernel crushing and biomass plant.

We would not be revising our earnings estimates as we have already assumed that CBIP would secure RM250m worth of contracts this year (FY07: RM276m). Despite this, it looks like the contract flow for CBIP is slowing and we would be visiting the group soon to get updates.

A concern is rising steel costs. Since the start of the year, steel costs have increased by 93%. We have assumed that the EBITDA margin for CBIP’s construction division would decline from 17% in FY07 to 13% in FY08F.

Despite potentially lower construction earnings, CBIP is still expected to record double-digit profit growth this year due to stronger plantation earnings. We estimate the plantation division to account for 37% of group EBITDA in FY08F. This should rise to 66% of group EBITDA in FY09F.

For now, we maintain Buy on CBIP. However, we would be reviewing our target price and earnings forecast for CBIP again due to slowing contract flows. Our target price is based on FY08F PE of 12x.