Feb 03, 2016 12:08:51
$AALI: 12M15 production performance: Unexciting

§ Lower FFB and flat CPO production in December: Due to continued flat matured area growth (2015: 259k ha; 2014: 253k ha) and lower yields (2015: 21.7 ton/ha; 2014: 22.0 ton/ha), AALI’s 12M15 FFB production only reached 5.6mn tons (102% of our 2015F), flat y-y. The 12M15 CPO production of 1.7mn tons (102% of our 2015F) was also relatively unchanged y-y, in line with the flat FFB production growth (exhibit 5). As the December data had already shown a decline in m-m FFB production of 10% due to the El Nino effect, we maintain our 2016 estimates for FFB (5.3mn tons, -4% y-y) and CPO production (1.6mn tons, -3% y-y). Note that the December CPO production was flat at 147k tons, showing higher external purchases for FFB processed.

§ Hurt by lower CPO prices: AALI’s CPO selling prices continued their downtrend, reaching an average of only IDR6,971/kg for FY2015 , -16% y-y, with the December price at just IDR5,791/kg (exhibit 10), -4% m-m and -25% y-y. Going into 2016, we expect the CPO selling price to slightly increase to around IDR7,400/kg, +6% y-y mainly on a stronger USD.

§ Expect better 4Q15 net profit on high forex gain: We believe the 4Q15 EBIT would be lower q-q and y-y considering lower 4Q15 CPO sales volumes of only 215k tons, -22% q-q and -42% y-y, as well as an unsupportive 4Q15 CPO price of just IDR6,012/kg, -6% q-q and -23% y-y. Meanwhile, 4Q15 olein sales volumes only reached 112k tons, +5% q-q and +1.4% y-y, which would likely have a minimal impact on revenue. Nonetheless, we expect a much better 4Q15 net profit, mainly supported by forex gain of around IDR300bn based on our estimate.

Recommendation: REDUCE; IDR14,300 TP; Expensive 2016 PE of 27x
At this stage of the market cycle, we believe sentiment on CPO is waning, dragged down by France’s decision to impose progressive import tax, which could be followed by other European countries. Additionally, low oil price is likely to also hold back CPO prices. Thus, while AALI has outperformed in the past month (exhibit 4), we believe it provides an exit opportunity for investors, particularly given its weak operating performance outlook. Based on our 2016F net profit of IDR978bn, +53% y-y, AALI now trades at an expensive 2016 PE of 26.6x, around 10% premium to the Malaysian sector (exhibit 6). Thus, we reiterate REDUCE with 12M TP at IDR14,300, based on a 2016F PE of 23x, around 5% discount to the Malaysian sector. Risk to our call includes higher CPO prices on El Nino effect.