19 Agustus 2022
AALI IJ - MNC Sekuritas Equity Report August 19, 2022
1H22 Earnings Lower than expectations
•Revenue stood at IDR10.96 tn (+1.23% YoY), reaching 49.72%/39.92% of MNCS/consensus target in FY22E.
•The palm oil segment generated an 2.34% lower revenue of IDR9.52 tn as CPO sales volume declined by 23% YoY to 478k tons, contribute 87% of revenue due to the ban on the export of CPO and its derivatives on Apr – May 22.
•Profitability-wise, AALI managed to reduce the cost of losses on commodity futures contracts, which were previously recorded at IDR647 bn in 1H21. Meanwhile, COGS increased by +6.11% YoY to IDR9.14 tn, followed by general and administrative expenses which rose +21.25% YoY.
•As a result, the company managed to record net profit increase of +24.64% YoY to IDR809.31 bn in 1H22. NPM grew to a 7.38% level (vs 5.99% in 1H21).
Full Storage Refinery
•Total FFB production in 1H22 was lower by 12% YoY to 1.96 mn tons. CPO production decreased -16% YoY to 637k tons (vs MNCS target at 1.41 mn tons in FY22E), Kernel fell -12% YoY to 138k tons, and Oleindecreased -43% YoY to 124k tons. We see a decline in CPO production in line with the maturity of palm tree age hence resulting in a lower yield. The average age of AALI's oil palms reaching 15.8 years (peak productivity age is 13 years).
•Management said it will reduce production inventory in 2H22 due to most of the company's CPO factory tanks being full. We consider this to be caused by the unstable government regulations related to export bans, making it difficult for companies to grow the business.
CPO Prices Will Remain High Above MYR3,500/mt Until FY22E
On (12/08) the price of CPO rose to the level of MYR4,407/mt, after experiencing a decline to reach MYR3,600/mt on July-22. On YTD basis, CPO prices fell -6.17% YTD due to the Indonesian Government's CPO export ban, followed by lower demand from China and India in 2Q22. We estimate that CPO prices will remain high ~MYR3,500/mt until FY22E accompanied by positive policies for the industry.
Focusing on Replanting
AALI in the future will focus on replanting, where the age of plantation crops is already at 15.8 years. For this reason, the company has budgeted a capex of IDR1.30 tn in FY22E, allocated for replanting and maintaining immature plants. In 1H22, capex absorption only reached 38% (IDR497 bn). This is something that companies must pay close attention to in order to increase their top line again. At least until FY22E, we estimate that the total mature plantations will grow by 5% - 7%.
Valuation & Recommendation: HOLD at Target Price IDR10,350
We revised our call for AALI to HOLD at TP: IDR10,350 (form BUY at TP: IDR14,350) implying 12.69x/0.97x PE/PBV FY22E. We trimmed our estimates for revenue and net profit lower by -9.32% YoY / -20.34% YoY in FY22E. Downside risk to our call: 1) the limited production due to the ageing of the plants and full storage refineries; 2) decline CPO prices; 3) lower demand from China.
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