Indonesian Plantation Companies in Focus: Astra Agro Lestari
Expectation of rising fresh fruit bunches (FFB) and crude palm oil (CPO) volumes in the second half of the year should boost the corporate earnings of Astra Agro Lestari, one of Indonesia's leading agribusiness companies. Meanwhile, sentiments related to the La Nina weather phenomenon and rising CPO demand on the back of the Indonesian government's biodiesel program should support CPO prices. Astra Agro Lestari is the plantation unit of diversified conglomerate Astra International.
Astra Agro Lestari's production of fresh fruit bunches and crude palm oil fell 16 percent and 12.2 percent, respectively, in the first quarter of 2016. Declining production is the result of El Nino-induced dry weather. In 2015 and the start of 2016 Indonesia experienced remarkable dry weather conditions that impacted on the output of agricultural commodities. The production of FFB and CPO is expected to remain limited in the second quarter of 2016 due to these weather conditions.
Declining output of CPO and FFB is the main reason why shares of Astra Agro Lestari have been under pressure in the last couple of months. Sinarmas Sekuritas noted that the decline in production of Astra Agro Lestari was significantly higher than initial forecasts had suggested. On Tuesday (19/07) shares of Astra Agro Lestari declined 1.46 percent to IDR 15,150 a piece. So far this year, the company's shares are still slightly - 0.31 percent - in green territory.
Stock Quote Astra Agro Lestari - AALI:
Although FFB and CPO output of Astra Agro Lestari is expected to rebound in the second half of 2016, full-year production is still estimated to fall 10 percent on a year-on-year basis. After the El Nino-induced drought, Indonesia could be plagued by La Nina-induced wet weather later this year. Although palm oil trees need plenty of water, an overdose causes problems and limits output of CPO and FFB. But, on a positive note, reduced CPO output will boost prices, and hence boost corporate earnings.
In recent years, heavily dropping palm oil prices caused severe headaches for palm oil plantation firms. Astra Agro Lestari reported a 75 percent (y/y) plunge in net profit to IDR 619.1 billion in 2015. However, analysts expect to see the plantation firm's corporate earnings rebound.
Rights Issue Astra Agro Lestari
Astra Agro Lestari aims to raise IDR 3.9 trillion (approx. USD $298 million) from a rights issue - in which it offers 349 million new shares at a price of IDR 11,425 a piece - to help pay off debts from a revolving loan. This rights issue was approved at an extraordinary shareholders general meeting on 11 April 2016.
Sinarmas Sekuritas expects to see Astra Agro Lestari's debt ratio lower from 66 percent in 2015 to 14 percent in 2016 as a result of the rights issue. Tofan Mahdi, Corporate Secretary of Astra Agro Lestari, said that the rights issue aims at reducing the company’s liabilities that stood at IDR 9.85 trillion in the first quarter of 2016.
Parent company Astra International, which currently owns a 79.68 percent stake in Astra Agro Lestari, agreed to act as a standby buyer of the new shares and this could push its share ownership up to 83.38 percent if the rights issue is not fulfilled completely.
Meanwhile, RHB OSK Securities expects to see a 2 - 4 percent (y/y) rise in palm oil demand this year and the average palm oil price at 2,600 ringgit per metric ton (and further rising to 2,750 per ton in 2017) supported by falling palm oil reserves due to the La Nina effect. Therefore the securities company advises traders to invest in Astra Agro Lestari's shares, setting the target price at IDR 17,400 per share.
Read more: Overview of Indonesia's Palm Oil Industry
For 2016 Astra Agro Lestari set aside IDR 2.5 trillion for capital expenditure (capex). Approximately 40 percent of total capex is to be used for the planting of new areas. Another 40 percent is to be used for infrastructure development around the company's operational areas. The remaining 20 percent is to be used for building mills. These expenditures are mostly financed through internal cash reserves.
Future Forecast Astra Agro Lestari s Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Revenues | 16,305.8 | 13,059.2 | 14,262.0 | 15,573.0 | 16,691.0 |
| Net Income | 2,504.5 | 619.1 | 1,711.0 | 2,004.0 | 2,124.0 |
| EBITDA | 4,451.0 | 2,738.0 | 3,149.0 | 3,640.0 | 3,894.0 |
| ROE (x) |
22.7 | 5.3 | 11.8 | 11.2 | 11.0 |
| ROA (x) | 14.9 | 3.1 | 7.9 | 8.9 | 8.9 |
in billion IDR rupiah unless otherwise stated
Source: Sinarmas Sekuritas (18/07/2016)