New Derivative Product Will Boost Profits of AALI

Bareksa.com - We upgrade our recommendation to Buy with new target price of Rp33.025 , with the potential up side by 17.9%. Our consideration: 1) The increase in 2014F/15F profit forecast of 13.5%/13%, is due to the sale of new derivative products (Olein & Stearin). 2)More over the prices of these CPO derivative products are less volatility and provide higher margins, Compared to around CPO products itself 3) Indonesia's larg-est palm oil company, and became the benchmark CPO prices in the domestic market. 4) Trading at PE 2014F/2015F respectively 13,4 x/10,1x.

Results in 1Q2014, revenue reach Rp3,7 tn (+36,8% YoY), equivalent to 23%/24 of our/consensus target (2014F). ASP becomes the main contri-bution of the increase in revenue in 1Q2014. ASP of CPO in 1Q2014 rose 38,4% to Rp8.949/kg, but for the volume of sales in 1Q2014, down 18%, to 314 211 tonnes. In the first quarter, AALI recorded sales Olein & Stearin, for the first time, amounting to Rp450 billion with sales volume of 40.799 tonnes.

The 1Q2014 net profit came strong with +118% YoY or Rp810 bn, made 27% of our & 32% of consensus. Net margin strengthen to 22% vs 14% in 1Q2013, was mainly driven by higher than expected of ASP & foreign exchange gain.

In 1Q2014, AALI produce 403.383 tonnes of CPO, an increase of 14,6% from the production in 1Q2013. AALI in 1Q2014 has sold 314.211 tonnes of CPO, down –17,9% compared to sales in 1Q2013.ASP of CPO in 1Q2014 recorded into Rp8.949 (the highest in the last 5 years) or in-creased 38% compared to 1Q2013, and 105% from our target FY2014.

AALI CPO production in 1Q2014 amounted to 403.383 tonnes, in line to our expec-tations, or 23% from our targets 2014. CPO sales volume in 1Q2014 fell 17,9% YoY, due to commencement of production olein, which is a derivative product. In the first quarter AALI able to produce 40.799 tonnes of palm olein, which produced 55.000 tonnes of CPO (Assumption ratio 6:4).

With a production capacity of olein AALI currently at 2000 tons CPO/day. We tar-get in this year's production olein & stearin, reaching 500.000 tones and fully op-eration next year. Olein & Stearin is the premium price than CPO, will increase the margin AALI forecast.

We maintain our CPO ASP targets for Rp8500/kg, although results in 1Q2014 AALI ASP has reached Rp8949/kg. We saw in the short term, there will be a drop in CPO prices, due to increased production and reserves of Malaysian palm oil

AALI sales in 1Q2014, grew 368% YoY to Rp 3,7 tn. CPO sales accounted for sales of Rp2,8 tn or 75% of total sales. The operation of the plant of refined, making AALI posted sales of olein (derivative products) amounted to Rp450 bn, with a sales volume of 40.799 tonnes. AALI gross margin rose 600 bps to 32%. This is due to the increase in the price of crude palm oil and CPO derevative product sales, which have a greater margin of CPO.

In 1Q2014, operating expenses AALI only grew 10% YoY and AALI recorded a for-eign exchange gain of Rp165 billion. It made a net profit in 1Q2014 AALI jumped 118% to Rp810 billion. Net margin increased 800 bps to 22%. The net income results reflect 27% of our target throughout the year.

The entry of derivative products, make 2014F/15F margin increased expectations of each 200/210 bps. Projected net income 2014F/15F, we rise to Rp3,44/Rp4,38 tn.

*Marolop A.Nainggolan is head of research PT Buana Capital. This article is part of the Equity Research of PT Buana Capital