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8 August 2014

Page | 1 MCI (P) 046/11/2013 Ref. No.: SG2014_0013

MCI (P) 046/11/2013 Ref. No.: INDO2014_0002

Astra Agro Lestari “Market Leader” Planter: New Innovation Supported Cost Efficiency in The Future

INDONESIA | PLANTATION | INITIATION

Rating:

Buy

Initiated with Buy Company Background

Astra Agro Lestari (AALI), founded in 1981 as a subsidiary of Astra International

(Astra Group), is the largest CPO producer in the country with the largest market

share (36.7%) supported by planted area of 281,378 hectares (nearly 4 times the

size of Singapore), making AALI one of the largest oil palm plantation listed

companies in the world. The major business lines for AALI are Crude Palm Oil

(90.56%) and Palm Kernel (9.37%), and AALI plans to expand to the downstream

sector by producing olein, stearin, and PFAD this year.

Undervalued Stock with a Strong Business Model

AALI’s business model is an upstream palm plantation player and starts to enter

downstream activity this year. The upstream business gives exposure to CPO

prices, while downstream business gives a relatively stable income stream.

Addition of rubber business is likely an earnings catalyst which we believe is yet

to be priced in. To improve its competitiveness, AALI has set up a joint venture

with KL-Kepong Plantation Holdings Sdn, Bhd, a Malaysian-based company. The

joint venture company is named Astra-KLK Pte, Ltd. and is established to market

the olein, stearin, and PFAD products and provide the logistics support. AALI has

a strong track record in plantation sector, which has proven its ability as a

market leader since 33 years ago amid high competition in the plantation

industry.

Investment Merits

Leading CPO player in Indonesia with 36.7% market share. AALI is a leading

palm oil producer in Indonesia with total production of 1.54 million tons of CPO,

supported by mature planted area of 247,287 hectares in FY2013. We expect

mature planted area to grow at a 5% CAGR over the next 5 years. AALI has the

biggest mature planted area compared to the other plantation companies in

Indonesia.

Expand to international market in 2014. Related with tax incentive policy by

government for CPO derivative product, AALI built a new refinery in Mamuju,

West Sulawesi, with total capacity of 2,000 tons/ day to produce olein (75%),

stearin (20%), and PFAD (5%) in 2014. To market its new products, AALI has set

up a joint venture company in Singapore to market its new products. AALI is the

only Indonesian listing plantation company that going to international market.

Rising revenue even with a flatish CPO price. In the period ended 31 December

2013, AALI booked net revenue of IDR 12.67 trillion, an increase of IDR 1.11

trillion or 9.6% compared with IDR 11.56 trillion in 2012, despite the CPO price

volatility which made the average selling price (ASP) declined by 0.6% year on

year to IDR 728 and the unfavorable weather condition. Rising revenue was

primarily driven by CPO high demand alongside the steady increase of global

population and a rising per capita consumption ratio. In addition, AALI also

continues to improve its cost efficiency through intensification and

Target Price (IDR) 33897

Forecast Dividend (IDR) 697

Closing Price (IDR) 26350

Potential Upside 31.3%

Company Description

Company Data

Raw Beta (Past 2yrs weekly data) 0.04

Market Cap. (USD mn / IDR tn) 3612/41770

Ent. Value (USD mn / IDR tn) 3855/44610

3M Average Daily T/O (mn) 1.50

Closing Px in 52 wk range 13,100.00 29,850

Major Shareholders (%)

79.6

20.4

Valuation Method

Discounted cash flow (DCF)

Analyst

Milka Mutiara

[email protected]

+62 21 57900800

Astra Agro Lestari i s a leading palm oi l

plantation company in Indones ia with main

segment in upstream bus iness supported by

281,378 hectares planted area, 26 CPO mil l s , and

43 subs idiaries . It i s majori ty owned by Astra

Internationa l (Astra Group). This year, Astra Agro

Lestari plans to expand in downstream bus iness

through its joint venture company, Astra-KLK Pte.

Ltd. in Singapore.

1. Astra Internationa l

2. Publ ic

0

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20

10000

15000

20000

25000

30000

35000

Au

g-13

No

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Feb

-14

May

-14

Au

g-14

Volume, mn AALI IJ Equity JCI rebased

Analyst Phillip Research Team +65 65311240 [email protected]

8 August 2014

Page | 2 MCI (P) 046/11/2013 Ref. No.: SG2014_0013

MCI (P) 046/11/2013 Ref. No.: INDO2014_0002

mechanization programs, something that the other plantation companies

neglect.

Low debt track record. In the period of FY2008-2011, AALI recorded a strong

cash position so there is no debt needed. The net gearing ratio of AALI is 20% in

FY2013 and 8% in FY2012, showed the AALI’s ability to pay both short-term and

long-term debt.

Key Risk Factors

Downtrend in CPO price. A decline in CPO price could be affected by various

reasons, such as weaker global economy, higher CPO supply in the global

market, and higher soybean supply. Throughout FY2013, the average CPO selling

price of AALI declined by 0.6% year on year.

An increase in foreign exchange rate. In FY2013, IDR was depreciated more

than 21% against the U.S. Dollar (USD). The effect of weakened IDR could reduce

AALI’s net profit due to its USD debt where as the total debt in USD currency of

AALI in FY2013 was USD 190 billion.

A decline of Fresh Fruit Bunch volume growth. Dry weather condition resulted

in the total production of FFB from nucleus estate to decrease by 9.5% from

4.13 MT in FY2012 to 3.74 MT in FY2013 and FFB yield to decline 11.7% to 20.7x

in FY2013.

Cost inflation could squeeze margins. Labor and fertilizer are the 2 main costs

in the business. So, the unexpected increase in the UMP (which expected to rise

15% yoy in 2014F) and the cost of fertilizers can reduce margins in the future.

Conservatively, we have assumed cost of production to rise by 12.0% in both

2015F and 2016F.

Investment Action

We initiate coverage on AALI with “Buy”. We are positive on 1) Higher revenue/

profit forecast for its CPO based on higher demand; 2) New strategic direction to

increase its cost efficiency and strong balance sheet. We value AALI at target

price of IDR 33,897 (potential upside of 31.3% including dividend yield) based on

our Discounted Cash-Flow (DCF) methodology.

FYE Dec FY13 14F 15F 16F 17F

Revenue (IDR bn) 12,675 14,261 16,246 18,552 21,233

Net Profit (IDR Bn) 1,801 2,438 2,951 3,520 4,236

EPS (IDR) 1.144 1.548 1.874 2.235 2.690 P/E (X) 23.01 21.90 18.09 15.16 12.60 BV (IDR) 6,283 7,937 9,074 10,429 12,060

P/BV (X) 4.19 4.27 3.74 3.25 2.81

DPS (IDR) 515 697 843 1,006 1,210 Div. Yield (%) 2.0% 2.6% 3.2% 3.8% 4.6%

Source: Bloomberg, PSI Research Est.

*Forward multiples and yields are based on current price and historical yields are based on historical price.

Key Financial Summary

Astra Agro Lestari 8 August 2014

Page | 3

Background of Company

History

PT Astra Agro Lestari Tbk. (AALI.JK) was established dated October 3rd, 1988. The

scope of its activities is to engage in plantation operation, general trading,

manufacturing, transportation, consultation and services. The company has

investments in 43 subsidiaries which are engaged in oil palm and rubber

plantations and industrial services. The company commenced commercial

operations in 1995. At FY2013, AALI has total mills of 26 mills, which all together

able to produce up to 1,280 tons of FFB/hour.

Figure 1: AALI’s plantation operational area (As of December 2013)

Notes:

Source: Company, PSI Research

PT Astra International Tbk. (ASII.JK) is the parent entity of the Company, whereas

Jardine Matheson Holdings Ltd, incorporated in Bermuda, is its ultimate parent

entity. As of December 31st, 2013, the Company manages the total of 281,378 ha

of oil palm plantations in Sumatra (Aceh, Riau, Jambi), Kalimantan (Central

Kalimantan, South Kalimantan, East Kalimantan), and Sulawesi (West Sulawesi and

Central Sulawesi), which consist of 220,021 ha of nucleus states and 61,357 ha of

plasma estates (See Figure 3). In order to operate, the Company employs 29,766

permanent employees in Jakarta, Sumatra, Kalimantan, and Sulawesi for the daily

operations.

Figure 2: AALI’s plantation composition by area

Kalimantan44%

Sumatera38%

Sulawesi18%


Figure 3: AALI’s plantation composition by

ownership

Nucleus78%

Plasma22%


No Location Mature (Ha) Immature (Ha) Total (Ha) 1 Aceh 9,100 2,644 11,744 2 Riau 5,591 5,340 61,931 3 Jambi 33,178 - 33,178

Sumatera 98,869 7,984 106,853 4 Central Kalimantan 52,308 704 53,012 5 East Kalimantan 40,805 3,232 44,037 6 South Kalimantan 9,081 16,687 25,768

Kalimantan 102,194 20,623 122,817 7 West Sulawesi 29,769 2,133 31,902 8 Central Sulawesi 16,655 3,151 19,806

Sulawesi 46,424 5,284 51,708 Total 247,487 33,891 281,378


Page | 4

Figure 4: Majority Shareholders Structure of AALI

79.58%

50.7%

72.18%

82.12%

Source: Company

Figure 5: Company History Highlights


1983

• PT Astra International established its Agribusiness Division. It was stareted with a cassava plantation of 2,000 hectares.

1984

• The first involvement in the cultivation of oil palm began with the acquisition of PT Tunggal Perkasa Plantations, which owned and managed 15,000 ha of oil palm plantations in Riau.

1988

• PT Suryaraya Cakrawala established which was then changed tp PT Astra Agro Niaga in 1989.

1997

• PT Astra Agro Niaga completed a merger with PT Suryaraya Bahtera and the Company's name was changed to PT Astra Agro Lestari.

Astra Agro Lestari Indonesia

Public Company listed in Indonesia

Astra International Indonesia

Public Company listed in Indonesia

Jardine Cycle & Carriage Limited Singapore

Public Company listed in Singapore

Jardine Strategic Holdings Limited Bermuda

Public Company with premium listing in London

Jardine Matheson Holdings Limited Bermuda

Public Company with premium listing in London

Others 20.32%

(all < 5%)

Others 27.82%

(all < 10%)

Others 49.89%

(all < 5%)

Others 17.88%

(all < 10%)

Others 44.85%

(all < 10%)


Page | 5

Management

The Company’s Board of Commissioners consists of 7 people and 3 of them are

Independent Commisioners. The Board convenes a quarterly meeting to discuss

the Company’s performance and relevant issues to monitor the execution of the

Company’s strategic planning and work plan.

Most recently, management has commited to innovating business operations and

improving the cost eficiency to boost its net profit. Additionaly, the company will

apply a fertilizer spreader system and mechanization programme, in an attemp to

reduce the company’s labor costs and increase the time efficiency.

Business Model and Business Segment

Purposes: There are two broad goals that AALI sets to achieve (1) to be the most

productive and innovative agribased company in the world and (2) to be the role

model for other plantation companies and contributes to the nation’s

development and prosperity.

Process: From the track records of its system, AALI has demonstrated its ability to

produce maximally. In 2013, the Company’s strategy focused on 4 areas consisting

of (1) improvement in internal processes to achieve cost leadership by pursuing

intensification and mechanization programs, (2) development of potential

upstream business by producing own seeds as well as downstream business by

completing the construction of refinery in West Sulawesi, with a total capacity of

2,000 tons CPO/day, (3) diversification by planting rubber, and (4) expansion

program by opening new planting areas and pursuing its replanting programs

consistently.

3 Business Segments

Figure 7: Palm Product Derivative


Figure 6: AALI has mechanization programs to

achieve its cost leadership.

Source: Company

Stearin

Olein

PFAD

Palm Kernel Oil

Charcoal

Mulching

Crude Palm Oil (CPO)

Empty Bunch

Fiber

Palm Shell

Fresh Fruit Bunch (FFB)

Palm Kernel


Page | 6

AALI is involved in 3 business segments (1) Crude Palm Oil (90.56%), (2) Palm

Kernel Oil (9.37%), and (3) Others (0.07%). Figure 8 provides segmental

information by revenue. Figure 7 provides palm product derivative lists, and until

FY2013 AALI produces Crude Palm Oil (CPO) and Palm Kernel (PK) only, but in 2014

AALI starts to produce olein, stearin, and PFAD as well.

1) Crude Palm Oil (CPO)

Currently, CPO is the largest contributor of AALI’s revenue at 90.56%. AALI has

been expanding its upstream business line by developing own seedling area using

cross-bridge system by the Research and Development team in collaboration with

Cameroon which is expected to be completed 4 years later. In addition, AALI also

continued its efforts to acquire new landbank followed by implementing a new

planting and replanting program, in order to ensure production suistainability.

CPO Outlook Views

CPO is Top Selling Oil in the World

Palm oil is one of 17 major oils and fats produced globally. Among 17 oils and fats,

palm oil is the highest consumed oil, reaching 3 billion people in 150 countries.

China is the largest consumer of palm oil, followed by India, Indonesia, and the

European Union. Palm oil is used in a wide variety of food products such as

cooking oil, shortenings, and margarine. Palm kernel oil is a raw material in the

production of non-food products which include soaps, detergents, toiletries,

cosmetics, and candles. Palm oil is increasingly being used as feedstock for biofuel

although its primary use remains for food. Oil palm is also the most efficient

oilseed crop in the world, which accounted 5.5% of global land use for cultivation

and produced 32.0% of global oils and fats output.

Indonesia as CPO Top Producer in the World

Indonesia and Malaysia produce about 85% of the world’s palm oil. Other producer

countries include Thailand, Columbia, Nigeria, Papua New Guinea, and Ecuador.

Indonesia currently is the largest producer and exporter of CPO worldwide with

total production of 50.5% of the world’s palm oil (See Figure 11). Indonesia’s oil

palm plantation and palm oil processing industry is an important sector to the

country’s economy. Indonesia has became the largest CPO producer in the world

since 7 years ago with national production of 28.40 million tons in 2013, higher

than the 2012 of 26.90 million tons. The plantation area is growing along with the

increasing amount of demand for palm oil in international markets. The US

Department of Agriculture reported that total planted area in Indonesia grew an

average 630,000 ha per annum between 2011-2013 to a record 10.8 million ha,

compares to growth rate of approxiamately 500,000 ha per annum over the

previous 10 years.

Supporting Factor for CPO Industry Growth

Although international turmoil has resulted in a significant decline of the global

palm oil price, the palm oil business in Indonesia is promising (on the long term)

due to a number of reasons: 1) Big profit margins, while the product is simple to

produce, 2) Large and increasing international demand, 3) CPO production costs in

Indonesia are the lowest worldwide, 4) Higher rates of productivity compared to

other edible oil products, 5) Biofuel is expected to increase its significance at the

expense of expensive gasoline.

Figure 8: Business Segments - Revenue

0

5000000

10000000

15000000

20000000

25000000

2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F

CPO PKO Others


Figure 9: CPO production is the largest among its

peers

Source: Oil World, PSI Research

Figure 10: CPO consumption is the largest as well

among its peers


Figure 11: Indonesia is the main CPO production

until 2013



Page | 7

We believe additional demand for biodiesel will be a game changer for global CPO

supply-demand. Additionally, for 2014 we expect biodiesel to absorb an additional

vegetable oil volume of 3 millions tons, of which 1 million tons would be from

Indonesian biodiesel demand. In addition to Indonesia, Malaysia plans to apply a

5% biodiesel blending requirement (B5). In South America, Brazil also plan to

increase their biodiesel blending requirements, up from 7% to 10% in 2014.

Although additional demand for biodiesel should be a key factor supporting the

CPO price outlook, few expect Indonesia to secure all 3.3 million kiloliters of 2014’s

forecast biodiesel supply.

Negating Factor for CPO Industry Growth

We believe there is still downward risk for the CPO price, as we expects 2014 world

vegetable oil production to reach 559,000 tons (up 6% year-on-year). However,

some vegetable oils cannot be exported given extremely high export taxes

(Argentina) and severe logistical problems (South America and Canada). In addition,

Indonesia palm oil industry still has to manage some problems such as: 1)

Awareness of the need for more environment-friendly policies, 2) Land disputes

with local communities due to a lack of clarity regarding land ownership, 3) Legal

and regulatory uncertainty, and 4) High logistics cost due to the lack of quality and

quantity of infrastructure.

CPO Supply vs. Demand

As the world’s most produced and consumed oils, CPO has higher supply and

demand every year (see Figure 12). In the last 15 years, CPO production grew 7.4%

CAGR while CPO consumption grew higher at 7.9% CAGR. CPO consumption was

also higher than its production in 2013 with 58,000 MT/ year and 57,000 MT/ year

respectively.

Figure 12: CPO consumption growth is higher than CPO production growth

Source: Oil World, Company, PSI Research

10

20

30

40

50

60

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F

Production Consumption

CAGR of production : 7.4%

CAGR of consumption : 7.9%


Page | 8

CPO Price Analysis

Neutral on CPO Prices: We believe there is still downward risk for CPO price, as we

expects 2014 vegetable oil production to reach 559,000 tons, up 6% year-on-year.

On the other hand, we believe poor weather condition and an El Nino pattern

(which predicted will occur in the near future) will disrupt the CPO supply. But we

have not included an El Nino risk, because this could be offset by rising CPO price.

Weakening global economy

The weakening economy in the global market, especially in India and China as the

top CPO consumers could reduce CPO demand. India’s real GDP growth is

expected to moderate to 5.9% (FY2014-18F), compared to 7.1% between FY2000-

07. At the same time, China’s growth is expected to moderate to 7.7% in FY2014-

18F compared to 10.5% during FY2000-07 (See Fig. 13). However, we believe that

global economy would rebound in this year after a slowdown economy in 2013.

Rising competition from other oilseeds

Soybean stockpiles are expected to jump 16% to 72 million tons in September

2014, in line with good weather in the U.S. accelerating crop planting. Further

weakness in soybean prices from hereon could mean greater competition for CPO,

which could hamper demand growth. Aside from Brazil and Argentina, a significant

year-on-year (yoy) increase in the production of oilseeds is also expected from the

European Union (EU) and Commonwealth of Independent States. Other than

soybean, production of rapeseed and sunflower seed too is expected to rebound

strongly following some bad weather conditions in the previous couple of years.

According to Oil World, India’s import of soybean oil and sunflower seed oil had

more than trebled and doubled respectively year-on-year in May 2014, while

imports of palm oil and palm kernel oil fell 17%.

Strong new planting in Indonesia

The US Depatment of Agriculture (USDA) noted that total area devoted to oil palm

plantings in Indonesia continues to expand rapidly, unhidered by the 2011 “forest

moratorium”. Total planted area is estimated to have grown an average 630,000

ha per annum between 2011-2013 to a record 10.8 million ha. This compares to a

growth approxiamately 500,000 ha per annum over the previous 10 years. Rapid

expansion in Indonesia will underpin robust palm oil production growth for the

foreseeable future, and its rising market share in the world’s production and

consumption of oil seeds.

Expecting CPO price for FY2014 @ USD 757, supported by biodiesel policy in

Indonesia

According to Oil World, the consumption of major vegetable oil including soya oil,

palm oil, sunflower oil, and rapeseed oil had been increasing over the past 10 years.

Moreover, we believe that increasing CPO demand in domestic market for

biodiesel could push CPO price in FY2014. Both Indonesia and Malaysia are pushing

ahead with plans to divert more palm oil for conversion into biodiesel and reduce

the burden of maintaining subsidies on transport fuels gasoline and diesel, which

has spurred higher domestic palm oil usage in the long run. With the average CPO

price which traded at USD 750 in FY2013, we expect the average CPO price for

FY2014 to be at USD 757/ton, a decline of 2% from current spot price of USD

772/ton. We believe our CPO price assumption is conservative.

Figure 13: China and India’s real GDP is expected

to moderate in FY2014-18F.

Source: OECD, PSI Research

Figure 14: Strong new planting in Indonesia will

underpin robust palm oil production growth.

Source: RSPO, PSI Research

0

2

4

6

8

10

12

2012 2018 2014 - 18 2000 - 07

China India

0

2000

4000

6000

8000

1990 2000 2005 2010

Indonesia Malaysia Papua New Guinea


Page | 9

2) Palm Kernel Oil (PKO)

Palm Kernel Oil only contribute as much as 9.37% to the AALI’s revenue. PKO is

used to produce glycerine and lauric acid. Both of them can be used in food

industry (as a humectant, solvent, sweetener, low-fat foods, vegetable shortening),

pharmaceutical industry (treating viral infections, improving smoothenes,

providing lubrications), and consumer goods industry (as a soap, shampoo,

toothpaste, mouthwashes, skin care products, shaving cream, hair care products).

Food Industry

Food consumption in Indonesia is expected to grow 9.1% in FY2014 with a

forecasted compound annual growth rate (CAGR) of 9.4% from FY2013-2018. The

growth of the sector has been fuelled by rising incomes and increased spending on

food by the middle class that now make up a 30 million person market. Urban

lifestyles are giving rise to a more varied diet which is supported by the

development of retail infrastructure in the form of malls and hypermarts. The

challenge for the food and beverage industry is to get a handle on import reliance

to keep prices down and to strengthen branding for consumers in Indonesia as well

as the rest of the ASEAN.

Pharmaceutical industry

Indonesia, a country of more than 6,000 inhabited islands, has a population of over

250 million people (the fourth most populous country in the world). Indonesia’s

GDP grew slightly less than 6% in FY2013, and is forecasted to grow between 5-6%

in FY2014. The Indonesian healthcare market is worth USD 24 billion, and this

could reach USD 31 billion in FY2016. At the same time, Indonesians are forecasted

to spend almost USD 150 per person on healthcare in FY2015, up from USD 35 in

FY2005. Indonesia has almost 10,000 primary care centers and over 2,200

hospitals. Three percent of Indonesia’s GDP is spent on healthcare, but this should

increase soon. The pharmaceutical market in Indonesia is expanding quickly, it is

valued at USD 6.5 billion with an annual growth rate of 12.5%. This growth is

expected to continue through FY2018.

Consumer Goods Industry

Aside from overall GDP growth, a number of trends highlight future potential in

the FMCG market. For one, minimum wages are rising quickly, with Jakarta lifting

the minimum wage by 44% in 2013 (Jakarta City Government). While many

Indonesians work in the informal sector where legal rules have little bearing, the

increase in formal and government sector wages will feed through to some extent

to the wider labor market. A large portion of the extra disposable income should

translate into higher FMCG sales, particularly among new middle class entrants.

Other consumer groups will find that higher earnings allow them to upgrade to

premium brands.


Page | 10

Investment Merits

We valuate Astra Agro Lestari with “Buy” recommendation with DCF-based price

target of IDR 33,897. The company is a crude palm oil producer in both upstream

and downstream sector with a planted area of 281,378 hectares (nearly 4 times

the size of Singapore) and an annual CPO production of 1,538,658 ton. AALI’s

plantations are spread over in Sumatera (37.8%), Kalimantan (43.8%), and Sulawesi

(18.4%). Currently, AALI is continuing its efforts to acquire new landbank in West

Borneo followed by implementing a new planting and replanting program, in order

to ensure production sustainability.

Leading CPO player in Indonesia with 36.7% market share

AALI is a leading palm oil producer in Indonesia with total production of 1.54

million tons of CPO supported by mature planted area by 247,287 hectares in

FY2013. We expect the mature area to grow 5% CAGR over the next 5 years (see

Figure 16) and CPO yield to gradually recover from FY2014 onwards (see Fig 17),

supporting AALI as a market leader in the plantation industry for the next 5 years.

To be the most innovative agribased company in the world

During the last 5 years, AALI’s plant breeding focused on collecting and planting

both mother palm and male palms, as the result of cooperation between Institute

of Agricultural, Research and Development (IRAD) Cameroon and the Company.

This plant breeding project began in 2008 and expected to produce seeds by 2018.

AALI has currently planted mother palms and male palms at their seed garden,

whereby the pollination in this seed garden was conducted in collaboration with

the Indonesian Oil Palm Research Institute (IOPRI), in mid 2013.

Have a good quality of Fresh Fruit Bunch

AALI has conducted water system management, assisted pollination and

integrated cultivation management to improve the quality of the palm oil plants.

Integrated pest management focused on efforts to apply biological agents and

planting beneficial plants, to reduce the need for chemical pesticides. In 2013, AALI

upgraded its loading and unloading methods, involving 32 Net Systems and 8 Bin

Systems, throughout 18 estates. These were adopted with the objective of

maintaining both quality and quantity of product during transportation.

Strive to achieve cost leadership by improving internal processes

AALI tried to improve its cost efficiency through intensification and mechanization

programs. AALI focused on implementation of its intensification program, which

included mechanization of harvesting activities, mechanized fertilizing activities,

and a biological fertilizer program using empty fruit bunches, in order to improve

soil fertility. AALI also installed 167 diesel generators this year with gasifier units to

improve efficiency. These gasification units run on heat from palm oil shells, thus

reducing fuel consumption. Because based on identification study, the highest fuel

consumption in estates is used to power diesel generators.

Figure 15: Market share of palm oil industry in

Indonesia.

AALI37%

SMAR17%

LSIP12%

SIMP12%

SSMS10%

ANJT4%

SGRO4%

Others4%

Source: Bloomberg, PSI Research

Figure 16: Mature planted area (ha) to grow 5%

CAGR over the next 5 years.

100000

150000

200000

250000

300000

350000

2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F


Figure 17: CPO yields to gradually recover from

2014 onwards.

0

2

4

6

8

10

18,5

19,5

20,5

21,5

22,5

23,5

2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F

FFB Yield CPO Yield



Page | 11

Not rely on one customer only

AALI has quite a diverse customer base, so its business is not rely on one customer

only. The biggest customer of AALI is Wilmar Nabati Indonesia (19%), Intibenua

Perkasatama (12%), Salim Ivomas Pratama (8%), and others (each under 10%).

From AALI’s net revenue in 2013 of IDR 12.67 trillion, its CPO domestic volume

composition reached 99.10% while CPO export sales volume reached 0.90% and

directed to India and China (See Figure 18).

Low debt track record

AALI generated consistently positive operating cash over capex, thus little gearing

has been needed. But in FY2012, AALI booked a short-term debt of IDR 972 billion

to maintain its revenue amid the lower CPO price (prices dropped significantly

from a high of USD 1,195/ton to a low of USD 656/ton), by purchasing 3rd party

CPO inventory to refine and sell, thereby increasing its CPO production by 16.4% to

1.48 million tons in FY2012. In FY2013, AALI also booked an additional short-term

bank loan of IDR 1.8 trillion and long-term bank loan of IDR 571 billion. The nucleus

Fresh Fruit Bunch (FFB) of AALI dropped by 9.5% due to the bad weather so that

AALI had to increase its FFB purchase by 1.3% to maintain its revenue. However,

the net gearing ratio of 20% in FY2013 and 8% in FY2012, shows the AALI’s ability

to pay both short-term and long-term debt.

Competitive Cost Structure

AALI has cost per tonne of IDR 4.60 million in FY2013, lower than its competitor

such as PP London Sumatra Plantation (IDR 5.06 million), Salim Ivomas Pratama

(IDR 8.65 million), and Sampoerna Agro (IDR 7.23 million) (See Figure 21). We

expect AALI could improve its cost efficiency through intensification and

mechanization programs in the future.

Risk Factor

Downtrend in CPO price potentially reduce its revenue

Unexpected downtrend in CPO price will potentially decrease AALI’s revenue from

upstream business line. A decline in CPO price could be affected by the following

reasons, such as weaker global economy, higher CPO supply in the global market,

and higher soybean supply. Throughout FY2013, the average CPO selling price of

AALI declined by 0.6% year on year. Against this, augmented CPO production

allowed the Company to raise its consolidated net revenue to IDR 12.67 trillion,

grown by 9.6% compared to IDR 11.56 trillion in FY2012. However, wee foresee

this is would not happen in the near term due to a better global economy and high

CPO demand after biofuel implementation in some countries.

An increase in foreign exchange rate

U.S. monetary policy to tapper quantitative easing, coupled with worsening

current account balance of Indonesia has led to the depreciation of most Asian

currencies, including Indonesian Rupiah (IDR). In FY2013, IDR was one of the worst

performing emerging market currencies, depreciating more than 21% against the

U.S. Dollar (USD). The effect of weakened IDR could reduce AALI’s net profit due to

its USD debt where as the total debt of AALI in FY2013 is USD 190 billion. Because

of its foreign exchange loss, AALI booked a net profit lower 25% in FY2013 to IDR

1.80 trillion compared to IDR 2.41 trilion in FY2012. We expect this would not

Figure 18: There is no customer exceeding 20% of

AALI’s net revenue

Wilmar Nabati Indonesia

19% Intibenua Perkasatama

12%

Salim Ivomas

Pratama

8%

Others61%


Figure 19: Most of AALI’s CPO for domestic

market.

Domestic99,10%

Export0,90%


Figure 20: AALI has a low-debt track record.

0

500000

1000000

1500000

2000000

2500000

2008 2009 2010 2011 2012 2013

Short Term Bank Loan Long Term Bank Loan


Figure 21: AALI has a quite low cost per tonne

compared with its peers.


- 1000000 2000000 30000000 4000000, 5000000, 6000000, 7000000, 8000000 9000000

10000000

AALI BWPT LSIP SGRO SIMP


Page | 12

happen again in the next 5 years due to the improved global economy and

strengthening of domestic economic fundamentals could appreciate the IDR.

A decline of Fresh Fruit Bunch volume growth

Unfavorable weather condition is the main factor that contributed to the decline

of operational performance in most palm plantation. Dry weather condition

resulted in the total production of FFB from nucleus estate to decrease by 9.5%

from 4.13 MT in FY2012 to 3.74 MT in FY2013 and FFB yield to decline 11.7% to

20.7x in FY2013 (See Fig 22). As a result, AALI had to purchase FFB from external

party to maintain its revenue growth. The extreme weather condition such as El

Nino could also decrease its FFB production as well as our EPS estimation. We

expect a strong FFB production growth for AALI in the future, as 45.3% of its

mature estates are the prime age of 7-18 years that produces optimum yield and

therefore contribute strong FFB production. And 14.2% of the mature estates are

still at the young age of 5-6 years, securing the mid-term growth of AALI’s

production. Moreover, we also believe that El-Nino will not bring any significant

effect to AALI’ financial performance this year as AALI has young age profile.

Cost inflation could squeeze margins

According to management, 40-45% of AALI’s cash cost of production came from

labor, 20-25% from fertilizer, with the rest from overhead and other miscellaneous

expenses. The annual minimum wage (UMP) is different in every province in

Indonesia, the highest is East Kalimantan with 40% increase during 2013 and cause

average labor cost for AALI to increase 18% year on year. We have taken into

account the increase in the cost of production by 12% in 2014F in anticipation of

any unexpected increase in the UMP (which expected to rise 15% yoy in 2014F)

and the higher cost of fertilizers that can reduce margins in the future.

Conservatively, we have assumed cost of production to rise by 12% in both 2015F

and 2016F.

Investment Correlation

The correlation between AALI’s stock price and the CPO price has been 61% over

the past 12 months. Among the plantation names, AALI’s share price movement

has one of the highest correlations with CPO. We expect a continuation of this high

correlation, thanks to the upstream-centic focus of its palm business.

Figure 22: FFB yield decline to 20.7x in FY2013


Figure 23: Share price correlation with CPO (r=0.61) Figure 24: Share price correlation

Correlation - r CPO

Astra Agro Lestari 0,61

BW Plantation 0,79

PP London Sumatra 0,63

Sampoerna Agro 0,37

Salim Ivomas Pratama 0,34

Average 0,55

6080

100120140160

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

No

v-1

3

De

c-1

3

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

AALI CPO Price

Source: Bloomberg, PSI Research Source: Bloomberg, PSI Research

20 20,5 21 21,5 22 22,5 23 23,5

0 50000

100000 150000 200000 250000 300000 350000

2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F

Immature Area Mature Area FFB Yields


Page | 13

Financial Review and Forecast

Capital Expenditure

Based on management, AALI allocated IDR 3 - 3.5 trillion capital expenditure for

FY2014 and we estimate that IDR 2.1 trillion capital expenditure is required every

year after FY2014. Its new planting and replanting implementation program will

require IDR 900 billion while investment on heavy equipment will require another

IDR 1.2 trillion. In addition, its investment on CPO mills and refinery will require

another IDR 900 billion this year. As AALI generates operating cash in excess of IDR

3 trillion, this expansion can be sustained without need for capital raisings.

Additional Debt

Based on its 1Q2014 results, AALI lowered its total borrowings to IDR 2.1 trillion,

compared to IDR 2.4 trillion in FY2012. Currently, the net gearing is 0.20x.

Historically, AALI has no borrowing until FY2011. In 2012, AALI has net gearing

0.08x during the construction of 2 palm oil mills in Kalimantan and Sulawesi. AALI

has USD 397 million facility bank loan, which used USD 222 million already.

However, given that cash flows are expected to be strong in FY2014 and FY2015

we reckon that on-going projects can be largely internally funded with non-

significant increases in debt.

Earnings Forecast: Although AALI management has revealed a 5-10% guidance for

revenue growth in FY2014, we believe a 12.5% growth is feasible this year due to

the increase of CPO prices. Considering historical revenue growth of 21.8%, 7.3%,

and 9.6% respectively in FY11, FY12, and FY13 (See Figure 26), which were

achieved predominantly with CPO sales, we surmise a 12.5% sales growth as

attainable in FY14.

2014 management guidence:

(1) Additional planted area: 10k hectares (new plantings/ organic) and 2.5k

hectares (replanting).

(2) CPO production growth: 5% - 10% compared to 2013’s production of 1.71

million tons (excluding weather impact).

(3) Capex FY2014: IDR 3 – 3.5 trillion (30% upstream; 30% downstream, 40%

heavy equipment).

(4) Expanding its downstream business by setting up a joint venture company

namely Astra-KLK Pte, Ltd. to market olein product in the international market

(especially India and China).

(5) Expanding its upstream business by developing own seedling area (joint with

Cameroon) to get a new variety in the next 4 years.

(6) Labor cost: up to 15% (supported by an increase in Provincial Minimum

Wages (UMP) imposed by the Indonesian government).

In our estimates, we assume AALI to increase 50k hectares planted area over the

next 5 years. If so, we can assume that the mature area will grow 10k hectares per

year. We also assume 1.7% CAGR for sales per 1k hectares area.

Figure 25: Alocation of AALI’s capex for FY2014

Heavy equipment

40%

New planting & replanting

30%

CPO mills & refinery

30%



Page | 14

Based on assumptions, revenue is projected to increase at 17.7% CAGR for FY2014-

2018F and the net profit is forecasted to rise at 31% CAGR over the same period.

We believe our additional planted area estimates to be conservative and earning

forecast to be attainable with AALI’s continued efforts to improve operational

efficiency.

Figure 26: Revenue Forecast for FY14-18F Figure 27: Net Profit Forecast for FY14-18F

Source: Company, PSI Research Source: Company, PSI Research

Dividend: AALI issued a full year dividend of IDR 810 billion in FY2013, translating

into a dividend payout ratio of 45% in 2013, no change compared to 2012. AALI

aims to maintain a dividend payout ratio of at least 45% from its net profit.

Figure 28: Dividend and Payout Ratio over FY2008 – FY2013

0%

10%

20%

30%

40%

50%

60%

70%

200000

400000

600000

800000

1000000

1200000

1400000

1600000

2008A 2009A 2010A 2011A 2012A 2013A

Dividend (IDR Mn) Dividend Payout


Valuation and Sensitivity Analysis

Discounted Cashflow Model

We set our price target for AALI at our base case NPV valuation of IDR 33,897 per

share using a DCF-based approach (WACC of 8.3%, terminal growth rate 1%). Our

price target implies P/E 21.90x. Plantation is a longer dated business with a long

gestation period before the crops are harvested and processed, with lead times

of even a decade at times. Commodity prices can be extremely volatile in those

periods hence we believe DCF is a better methodology to value the business

through the cycle.

14261 16246

18552 21233

24314

-

5000

10000

15000

20000

25000

30000

2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F

CAGR 17.7% CAGR 17.7%

2438 2951

3520 4236

5283

0

1000

2000

3000

4000

5000

6000

2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F

CAGR 30.9%


Page | 15

Figure 29: Astra Agro Lestari DCF valuation and WACC calculation

Source: Company, PSI Est.

Target price sensitivity to WACC and terminal growth rate

AALI’s target price is more sensitive to variance in the terminal growth rate

assumption versus that of the WACC assumption. The target price varies 15-22%

for every 0.5% change in terminal growth rate whereas the variance is 14-20% for

same change in WACC assumption.

Figure 30: DCF Fair Value Sensitivity

Source: PSI Research Est.

Target price sensitivity to other key variables

We have identified the following 3 variables that are vital to the earnings

performance and price target: (1) Fresh Fruit Bunch (FFB) yield, (2) CPO production

volume, and (3) CPO price assumption. In the below study, we will vary the FFB

yield, CPO production, and CPO price assumption by 10%. Other variable are kept

constant.

According to our analysis, the target price is more sensitive to the CPO price

assumption as compared to FFB yield and CPO production. Our sensitivity analysis

shows that: (1) Every 10% change in FFB yield will impact the target price by 39%,

(2) Every 10% change in CPO production volume will impact the target price by

3.5%, and (3) Every 10% change in CPO price assumption will impact the target

price by 53-57%.

IDR (Bn) 2012 2013 2014F 2015F 2016F 2017F 2018F

EBIT 3,525 2,605 3,365 4,018 4,746 5,651 6,928

Add: Depreciation 162 166 123 171 198 230 265

Less: Tax Expense -306 -144 -186 -223 -263 -313 -384

Less: Capex -1,725 -2,870 -3,000 -2,100 -2,100 -2,100 -2,100

Less: Working Capital -469 630 -29 -17 -19 -22 -24

Free Cash Flow (FCF) 1,187 387 273 1,849 2,562 3,446 4,685

PV of FCFF (growth + terminal) 55,393 WACC Components

Less debt add cash -2014 Risk Free (Rf) 8.12%

PV of FCFE 53,379 Beta 0.39

FV per share (‘000) 34 Required Return (Re) 11.55%

2014 EPS 1.55 Equity Risk Premium 3.43%

Target PER 21.90 WACC 8.30%

6.9% 7.4% 7.9% 8.4% 8.9% 9.4% 9.9%

-0.5% 33,369 31,651 30,138 28,795 27,595 26,516 25,540 0.0% 35,482 33,505 31,779 30,258 28,908 27,702 26,618 0.5% 37,924 35,628 33,641 31,185 30,378 29,022 27,809 1.0% 40,781 38,082 35,774 33,897 32,034 30,498 29,135 1.5% 44,167 40,952 38,240 35,920 33,914 32,162 30,619 2.0% 48,244 44,354 41,123 38,397 36,067 34,051 32,290 2.5% 53,248 48,450 44,541 41,295 38,555 36,213 34,187

WACC

Terminal Growth Rate

IDR


Page | 16

Figure 31: Astra Agro Lestari earnings and price target sensitivity analysis

Source: PSI Research Est.

IDR in Billion unless otherwise stated

2014F 2015F 2016F 2014F 2015F 2016F 2014F 2015F 2016F

FFB yield (MT/ha) 19.43 19.69 19.71 21.59 21.87 21.90 23.75 24.06 24.09 Sales 13,217 15,109 17,325 14,261 16,246 18,552 15,304 17,383 19,779

EBITDA 2,470 3,045 3,780 3,424 4,086 4,903 4,379 5,127 6,025

Net profit 1,593 2,030 2,531 2,438 2,951 3,520 3,283 3,873 4,509

EPS (IDR) 1.01 1.29 1.61 1.55 1.87 2.24 2.08 2.46 2.86 Price target (IDR) 20,807 33,897 47,014

CPO production ('000 MT) 1.536 1.683 1.849 1707 1870 2054 1.878 2.057 2.259 Sales 12965 14775 16874 14261 16246 18552 15549 17720 20238

EBITDA 2238 2740 3367 3424 4086 4903 4603 5434 6445

Net profit 1388 1760 2168 2438 2951 3520 3481 4145 4878


CPO price (IDR/MT) 681 709 737 757 787 819 833 866 901 Sales 12,968 14,774 16,871 14,261 16,246 18,552 15,553 17,718 20,234

EBITDA 2,241 2,739 3,364 3,424 4,086 4,903 4,607 5,433 6,441

Net profit 1,390 1,759 2,165 2,438 2,951 3,520 3,485 4,144 4,875


FFB yield (MT/ha) -10.0% -10.0% -10.0% 0% 0% 0% 10.0% 10.0% 10.0%

Sales -7.3% -7.0% -6.6% 0% 0% 0% 7.3% 7.0% 6.6%

EBITDA -27.9% -25.5% -22.9% 0% 0% 0% 27.9% 25.5% 22.9%

Net profit -34.7% -31.2% -28.1% 0% 0% 0% 34.7% 31.2% 28.1%

EPS (IDR) -34.7% -31.2% -28.1% 0% 0% 0% 34.7% 31.2% 28.1%

Price target (IDR) -38.6% 0% 38.7%

CPO production ('000 MT) -10.0% -10.0% -10.0% 0% 0% 0% 10.0% 10.0% 10.0%

Sales -9.1% -9.1% -9.0% 0% 0% 0% 9.0% 9.1% 9.1%

EBITDA -34.6% -32.9% -31.3% 0% 0% 0% 34.4% 33.0% 31.5%

Net profit -43.1% -40.4% -38.4% 0% 0% 0% 42.8% 40.5% 38.6%

EPS (IDR) -43.1% -40.4% -38.4% 0% 0% 0% 42.8% 40.4% 38.6%


CPO price (IDR/MT) -10.0% -10.0% -10.0% 0% 0% 0% 10.0% 10.0% 10.0%

Sales -9.1% -9.1% -9.1% 0% 0% 0% 9.1% 9.1% 9.1%

EBITDA -34.6% -33.0% -31.4% 0% 0% 0% 34.6% 33.0% 31.4%

Net profit -43.0% -40.4% -38.5% 0% 0% 0% 42.9% 40.4% 38.5%

EPS (IDR) -42.9% -40.4% -38.5% 0% 0% 0% 42.9% 40.4% 38.5%


Changes (%)

-10% vs. Base Base estimates +10% vs. Base


Page | 17

Peer group valuation comparison

AALI’s peers comprise not only plantation names listed in Indonesia, Malaysia, and Singapore.

Figure 32: Comparation of valuation with industry


2014F 2015F 2016F 2014F 2015F 2016F 2014F 2015F 2016F 2014F 2015F 2016F 2014F 2015F 2016F

14y 15y 16y 14y 15y 16y 14y 15y 16y 14y 15y 16y 14y 15y 16y

Astra Agro Lestari AALI IJ 3580 21.90 18.09 15.16 4.27 3.74 3.25 3.65 3.50 3.35 22.20 22.50 23.50 2.65 3.20 3.82 Indonesia

BW Plantation BWPT IJ 450 13.74 9.70 7.25 2.01 1.70 1.38 10.34 8.10 6.32 15.34 18.97 20.27 0.89 1.39 1.90 London Sumatra LSIP IJ 1190 13.14 11.94 11.16 1.90 1.71 1.58 7.63 6.92 6.48 14.98 15.26 14.73 2.26 2.90 3.41 Salim Ivomas Pratama SIMP IJ 1200 12.90 11.70 11.99 0.96 0.90 0.86 6.37 5.98 5.70 7.70 7.87 6.79 2.12 2.42 2.00 Sampoerna Agro SGRO IJ 348 12.55 10.12 8.61 1.37 1.24 1.11 7.05 5.81 5.33 11.32 13.07 13.14 1.50 2.55 2.72 Mean 14.85 12.31 10.83 2.10 1.86 1.64 7.01 6.06 5.44 14.31 15.53 15.69 1.88 2.49 2.77 Median 13.14 11.70 11.16 1.90 1.70 1.38 7.05 5.98 5.70 14.98 15.26 14.73 2.12 2.55 2.72 Malaysia

Felda Global Ventures FGV MK 4670 18.75 16.40 16.46 2.15 2.04 1.93 14.10 12.87 12.61 11.49 12.47 11.29 2.84 3.41 3.33 Genting Plantations GENP MK 2760 21.63 17.98 16.20 2.39 2.17 1.99 16.06 13.09 11.71 10.77 11.89 12.06 1.14 1.28 1.41 IOI Corp IOI MK 10030 21.27 20.57 19.46 4.25 3.97 3.61 13.97 14.95 14.14 19.66 21.85 21.58 3.15 3.07 3.09 Kuala Lumpur Kepong KLK MK 7970 20.61 19.41 18.49 3.10 2.86 2.66 13.94 12.77 12.15 15.51 15.19 14.69 2.68 2.89 3.00 Sime Derby SIME MK 18470 18.92 16.50 15.32 2.04 1.92 1.82 11.97 10.51 9.68 11.08 11.98 12.01 3.05 3.32 3.48 Mean 20.24 18.17 17.19 2.79 2.59 2.40 14.01 12.84 12.06 13.70 14.68 14.33 2.57 2.79 2.86 Median 20.61 17.98 16.46 2.39 2.17 1.99 13.97 12.87 12.15 11.49 12.47 12.06 2.84 3.07 3.09 Singapore

Bumitama Agri-Resources BAL SP 1780 16.61 13.82 11.43 3.07 2.58 2.16 11.01 9.40 8.00 19.64 20.14 19.64 0.97 1.11 1.35 Golden Agri Resources GGR SP 5650 13.45 11.99 11.09 0.63 0.60 0.58 9.51 8.28 7.77 4.66 5.35 5.40 2.27 2.96 2.73 Indofood Agri Resources IFAR SP 1120 12.60 11.03 9.82 0.86 0.80 0.74 7.55 6.75 6.07 6.57 7.12 7.92 0.87 1.07 1.29 Wilmar International WIL SP 16730 12.86 11.10 10.19 1.04 0.97 0.91 13.55 11.80 10.74 8.11 8.93 9.19 2.11 2.46 2.53 First Resources FR SP 2990 12.93 10.98 9.73 2.45 2.09 1.82 9.14 7.80 6.95 20.44 20.80 19.89 2.12 2.54 2.86 Mean 13.69 11.78 10.45 1.61 1.41 1.24 10.15 8.81 7.91 11.88 12.47 12.41 1.67 2.03 2.15 Median 12.93 11.10 10.19 1.04 0.97 0.91 9.51 8.28 7.77 8.11 8.93 9.19 2.11 2.46 2.53 Overall industry mean 16.26 14.09 12.82 2.17 1.95 1.76 10.39 9.24 8.47 13.30 14.23 14.14 2.04 2.44 2.59 Overal industry median 13.14 11.70 11.16 1.90 1.70 1.38 9.51 8.28 7.77 11.49 12.47 12.06 2.12 2.55 2.72

Company P/E (x) P/B (x) EV/EBITDA (x) ROE (%) Div Yield (%)

Ticker Market Cap (USD MN)


Page | 18

SWOT Analysis

Strength

Has an intensification and mechanization programs to achieve its cost

efficiency.

Sound production growth, supported by productive plant profiles.

AALI is the most inovative plantation as it has plant breeding project in

association with Institute of Agricultural, Research, and Development (IRAD)

Cameroon, and is expected to produce its own seeds by 2018.

Has an integrated pest management through the utilization of natural enemies,

such as predators and parasitoids, to reduce the amount of pesticides.

Building a good water system management through a small dam in its

plantation to anticipate El Nino.

Weakness

99.9% of AALI’s business still depends on its upstream line, which fluctuates in

the market and is highly dependent on weather conditions.

AALI has not achieved its cost efficiency yet (its target of IDR 3.50 million for

being the most efficient plantation company in Indonesia), which is currently

cost per ton of IDR 4.60 million in the FY2013.

AALI does not have anymore unplanted area which can support its production

growth in the future, so AALI has to replant and to continue to explore new

area every year.

Opportunity

There are some opportunities for AALI in the international market, where AALI

have started to do through its joint venture company, Astra-KLK Pte. Ltd.

There are some opportunities for AALI in downstream business line such as

biodiesel, refinery, etc. This could help AALI to create its own CPO demand.

Threat

Uncertainty of El Nino and volatility of CPO price could be a significant threat

to AALI’s business.

Weaker CPO demand from India and China is a challenge for AALI to achieve

its revenue target this year.

Rapid expansions by other plantation companies are a challenge for AALI to

continue to diversify its products.


Page | 19

Source: Company data, PSI Research Est.

*Forward multiple and yields are based on current price and historical yields are based on historical prices

FYE Dec FY2012 FY2013 FY2014F FY2015F FY2016F FY2012 FY2013 FY2014F FY2015F FY2016F Income Statement (IDR bn) Balance Sheet (IDR bn) Revenue 11564 12675 14261 16246 18552 PPE 4919 6494 10833 12118 13381 EBITDA 3454 3005 3424 4086 4903 Investment 0 8 8 8 8 Depreciation & Amortization 416 341 523 669 753 Others 5720 6769 3915 4684 5808 EBIT 3038 2664 2901 3417 4150 Total non-current assets 10639 13271 14756 16810 19197 Net Finance (Expense) / Income -7 -54 -53 44 35 Inventories 1249 803 899 1007 1128 Other Items 494 -5 517 557 561 Account Receivables 50 21 40 45 52 Associates & JVs 0 0 0 0 0 Cash 228 709 1977 1913 1892 Profit Before Tax 3525 2605 3365 4018 4746 Others 1552 983 1118 1257 1413 Taxation -1005 -702 -790 -890 -1027 Total Current Assets 1780 1692 3095 3170 3305 Profit After Tax 2520 1903 2575 3128 3719 Total Assets 12419 14963 17851 19980 22502 Non-controlling Interest 110 102 138 167 199 Short Term Loans 972 1809 1809 1809 1809 PATMI 2410 1801 2437 2961 3520 Account Payables 565 720 806 903 1011

Others 2036 3039 3151 3289 3451 Per Share data (IDR) Total Current Liabilities 2601 3759 3957 4192 4462 EPS, reported 1.53

1.14 1.55

1.87 2.24

Non Controlling Interest 336 373 414 460 511 DPS 685

515 697

843 1005 Shareholder's Equity 9029 9895 12499 14289 16423

BVPS 5.73 6.28

7.94 9.07

10.43

FY2012 FY2013 FY2014F FY2015F FY2016F FY2012 FY2013 FY2014F FY2015F FY2016F Valuation ratios

Cashflow Statements (IDR bn) P/E (X) 13.46 23.01

21.90 18.09

15.16

CFO P/B (X) 3.59 4.19

4.27 3.74

3.25

Net Income 2410 1801 2438 2951 3520 EV/EBITDA (X), adj 2.33 2.90

3.65 3.50

3.35

Adjustments 64 -32 -1263 -167 -199 Dividend Yield (%) 2.60% 1.96% 2.65% 3.20% 3.82% WC Changes -469 630 -29 -17 -19 Growth & Margins (%) Cash generated from ops 1082 2216 -1695 391 370 Growth Others 2410 1802 2438 2952 3520 Revenue 7.3% 9.6% 12.5% 13.9% 14.2% Cashflow from ops 3492 4018 743 3343 3890 EBITDA 8.1% -13.0% 14.0% 19.3% 20.0% CFI EBIT 5.8% -26.1% 29.2% 19.4% 18.1% Capex, net -1725 -2870 -3000 -2100 -2100 Net Income 0.2% -25.3% 35.3% 21.1% 19.3% Others -902 -346 3314 -197 -482 Margins Cashflow from Investments -2627 -3216 314 -2297 -2582 EBITDA Margin 0.30

0.24 0.24

0.25 0.26

CFF EBIT Margin 0.30

0.21 0.24

0.25 0.26

Share Issuance 0 0 0 0 0 Net Profit Margin 0.21

0.14 0.17

0.18 0.19

Loans, net of repayments 0 571 0 0 0 Key Ratios Dividends -1456 -968 -1097 -1328 -1584 ROE (%) 26.7% 18.2% 19.5% 20.7% 21.4% Others -19 647 1309 218 256 ROA (%) 19.4% 12.0% 13.7% 14.8% 15.6% Cashflow from financing -1475 -321 212 -1110 -1328 Net Debt (Cash) 744 2014 856 1001 1118 Net change in cash -610 481 1269 -64 -20 Net Debt / Equity 0.08

0.20 0.07

0.07 0.07

CCE, end 228 709 1977 1913 1892 Debt / Equity 0.11

0.28 0.23

0.20 0.18


Page | 20

Total Returns Recommendation Rating> +20% Buy 1+5% to +20% Accumulate 2-5% to +5% Neutra l 3-5% to -20% Reduce 4< -20% Sel l 5

We do not base our recommendations entirely on the above quanti tative

return bands . We cons ider qual i tative factors l ike (but not l imited to) a s tock's

ri sk reward profi le, market sentiment, recent rate of share price appreciation,

presence or absence of s tock price cata lysts , and speculative undertones

surrounding the s tock, before making our fina l recommendation.

Ratings History

PSR Rating System

Remarks

12345

1.4

5001.4

10001.4

15001.4

20001.4

25001.4

30001.4

35001.4

40001.4

Jan-1

2

Apr-12

Jul-12

Oct-1

2

Jan-13

Apr-13

Jul-13

Oct-13

Jan-1

4

Apr-14

Jul-14

Oct-14

Jan-15

Source: Bloomberg, PSRMarket Price

Target Price


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Important Information

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