Strong ESG Proposition and JIIPE Optimization
Implementing Best Practices in ESG Initiatives
• AKRA strives to create sustainable business seriously through: 1) The installation of 764 solar panels in JIIPE that will save 484kWh and reduce CO2 production by 452kg annually; 2) establishment of a JV with Bayu Buana Gemilang to focus on the distribution of natural gas.
• The company also employs ~70% of the local workers at each BP gas station. AKRA has already operated 26 BP-AKR retail outlets by Feb-2022 and plans to open another 25-30 BP-AKR outlets throughout the year.
• Those initiatives lead AKRA into various ESG indexes, including ESG Leader Index, Sri Kehati Index, and ESG LQ45 Index, attracting more investors who put sustainability aspects as their investment factor.
• AKR targets to achieve >30% income from clean or renewable energy in the next five years.
Maintaining Solid Performance in the Upcoming Quarter
• Continuing the solid performance during 9M21, when net profit grew by 20% YoY to IDR797bn and revenue up by 24%, driven by strong selling price and demand for petroleum and basic chemical, the company continues to report strong demand during 4Q21.
• This year, management has a cautious optimism about the trade and distribution segment as economies are set for recovery after the pandemic, and international trade becomes more robust. We strongly believe the solid performance should continue in FY22E. We estimate AKRA will be able to secure 2.7-2.9mn kl (+7%-8% YoY) of petroleum sales volumes in FY22E/FY23F, mainly supported by the increasing demand from the coal mining industry with new customers from the smelter industry, palm oil, and other mining sectors. Meanwhile, we believe the chemical segment will gradually pick up in FY22E supported by JV AKR-Petronas.
• We are also confident of strong margin expansion supported by sales from the industrial estate project going forward. We expect JIIPE to book ~40ha p.a. land sales in FY22EFY23F. Hence, we set our top-line target at 16.6%/16.4% YoY to IDR23.5tn/IDR27.3tn in FY22E/FY23F. Meanwhile, earnings could significantly pick up to 17.7%/16.8% YoY in FY22E/FY23F, in line with management targets of 15%-18% in FY22E.
Maintain BUY with TP IDR1,000
We maintain our BUY recommendation for AKRA with a target price of IDR1,000 (+44% upside), implying an FY22E PE of 16.1x and EV/EBITDA of 9.9x. Currently AKRA is trading at -1STD EV/EBITDA of its 5-years mean. We expect AKRA to gain a good momentum this year, aligned with a healthy recovery on trading and distribution businesses and potential JIIPE SEZ opportunities. AKRA also reported an increase in its shares in the stock exchange, now reaching 20.07bn shares. It has been multiplied five times following the stock split, with a 1:5 ratio taking place last Jan-2022. We believe the stock split will make AKRA shares more appealing, especially to retail investors. Downside risks to our call include: 1) slower than expected growth due to pandemic; 2) unfavorable changes in government regulation.
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