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29 Maret 2021

AKRA IJ - MNC Sekuritas Initiation Report 29 March 2021

PT AKR Corporindo Tbk (AKRA IJ)

Logistic and Distribution Sector

 

Stepping Forward into Growth

Indonesia’s most integrated logistics and supply chain company, PT AKR Corporindo Tbk (AKRA IJ), is engaged in the trading and distribution of Petroleum and Basic Chemicals with extensive network of liquid bulk and dry bulk storage, transportation facilities, and port operations.

 

SEZ’s Proposal approved! JIIPE deserves a Promising Future

National Council for Special Economic Zones (SEZ/KEK) has finally approved the establishment of new SEZ in Feb-2021, namely JIIPE KEK (Java Integrated Industry and Port Estate) Gresik, East Java. The JIIPE SEZ is expected to attract investment worth USD16.9 billion (IDR236 trillion) and absorb 199,818 workers when fully operational. The JIIPE SEZ is developed mainly for the metal, electronics, chemical, energy, and logistics businesses. We believe the SEZ status carrying a positive sentiment for JIIPE since it comes with several benefits for its tenants, including: 1) ease of licensing; 2) reduction or suspension of certain taxes; 3) exemption from customs, import duties, and taxes on imports of capital good, as well as very open to export opportunities. At gross profit level, AKRA will expand its JIIPE’s contribution from 7% in FY19 to 22% in FY23F with targeted growth of 13% YoY.

 

Omnibus Law creates a Stronger Investment Climate

The ratification of the Job Creation Bill would make Indonesia a far more attractive destination and create a stronger investment climate for foreign investors, in our view. This will certainly increase land sales in JIIPE as shown by the successful sale of JIIPE's 14ha land in 1Q21 (35% of 40ha target in FY21E). We expect the Omnibus Law to have a positive impact on AKRA's businesses include: 1) licensing simplification; 2) ease of investment (for strategic industries, allow SOE to have JV with private sector); 3) labor reform; 4) ease of doing business (facility for foreigner’s work permit, electronic single submission, incentives for SME); 5) accelerating acquisition of land for public purposes and National strategic Project; 6) Government support in acquiring 50% of land for SEZ that allocate some part of land for SME & cooperation as well as administration streamlining.

 

Preparing the trading and distribution businesses for 'the day after' the pandemic

Despite the challenges and risks, management cautious optimism about trade and distribution segment this year, as economies are set for recovery after the pandemic and international trade becomes more robust. In fact, FY20 petroleum distribution volume grew by 11%, slightly in line with management’s pre-Covid19 guidance of 12%-15% growth. Growth achieved with both additional businesses from existing customers and new customers with margins are being maintained. Currently, AKRA owns 137 SPBKB (petrol stations for motorists) and SPBN (petrol stations for fisheries) outlets, spread across regions of Indonesia. In addition, AKRA has opened 16 BP AKR outlets since FY18 and plans to open a total of 350 outlets in the next 10 years. Thus, we estimate AKRA will be able to secure 2.53-2.77 mn kl (+9%-10% YoY)  in petroleum sales volumes in FY21E/FY22F, mainly supported by the increasing demand from the coal mining industry together with new customers from the smelter industry, palm oil, and other mining sectors. Meanwhile, we believe the chemical segment will gradually pick up in FY21E supported by JV AKR-Petronas that expected to start operate in Apr-21. Management targets bottom line to pick up by 12%-15% in FY21E.

 

Staying One Step Ahead: AKRA Consider to open EV Charging Station

Movement towards electric vehicle (EV) came in a rush within the next few years. AKRA has prepared a strategy to seize this opportunity, in cooperation with British Petrol which operate the largest charging stations in the UK called Chargemaster. BP-AKR will open charging facilities and battery exchange stations completed with retail stores. The battery EV would need approximately 30 to 40 minutes until fully charged. We believe AKRA is at the position of advantage with the growing number on EV in Indonesia and incentives for both user and industry player which will increase the need of charging stations. Besides, AKRA would also gain recurring income from tenant rents at the charging facility as well as revenues from car lubricant sales.

 

Initiate coverage on AKRA IJ with a BUY call; TP: IDR4,200

We initiate coverage on AKRA IJ with a 12-months target price of IDR4,200 (+24% upside), implies an FY21E PE of 15.87x and EV/EBITDA of 9.64x. Our SOTP valuation consist of DCF-based (WACC: 10.5%) and NAV with IDR828 bn value for AKRA’s industrial estate 1st phase (50% disc. to RNAV). AKRA currently trade close to -1STD EV/EBITDA with improving earnings momentum. We expect AKRA should gain a good momentum this year align with a healthy recovery on trading and distribution businesses as well as potential opportunity on JIIPE SEZ.Downside risk to our call include: 1) slower than expected growth due to pandemic; 2) unfavorable changes in government regulation.

 

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