Palm Oil Firm Astra Agro Lestari to Benefit from Higher CPO Price
Agribusiness company Astra Agro Lestari, one of Indonesia's leading crude palm oil (CPO) producers, is expected to show a better performance in 2016 on an expected rise in palm oil prices. Although palm oil futures currently feel the negative effects of tumbling global crude oil prices, these futures are estimated to have risen to about 2,700 ringgit per ton by May 2016 from around 2,385 (approx. USD $540) per ton currently.
Expectations of higher palm oil prices are not so much the result of higher global demand, but more the result of weaker palm oil harvests in 2016 due to El Nino-inflicted dry weather and the forest fires that ravaged on parts of Sumatra and Kalimantan (and spread toxic haze to other parts of Southeast Asia). The World Bank said more than 100,000 man-made forest fires destroyed 2.6 million hectares of land between June and October 2015. The costs are estimated at IDR 221 trillion (approx. USD $16 billion or 1.9 percent of the country's gross domestic product).
Besides limited output, domestic palm oil demand in Indonesia is expected to grow on the government's biodiesel program. Domestic consumption of CPO is estimated to grow 37 percent (y/y) from 8.4 million tons in 2015 to 11.5 million tons in 2016 according to the Indonesian Palm Oil Board (DMSI), implying falling CPO exports from the world's largest producer and exporter of palm oil as the Indonesian government plans to raise the mandatory amount of fatty acid methyl ester (derived from palm oil) that is blended with diesel (to produce biodiesel) from 15 to 20 percent this year.
Combined, reduced palm oil output and higher demand in Indonesia will support global palm oil prices although gains may be limited if crude oil prices continue to slide. Higher palm oil prices are good news for palm oil producers. Although sales volumes may decline the higher palm oil price more than compensates for this decline.
Read Analysis: Overview of Indonesia's Palm Oil Industry
One of these companies is Astra Agro Lestari, the plantation unit of diversified conglomerate Astra International. The company's sales and net profit are estimated to rebound after a weak 2015 (see table below). The company is also eager to reduce its foreign-denominated debt, a move that will improve its future financial earnings.
Rudy Chan, Financial Director of Astra Agro Lestari, said the company plans to invest in the downstream palm oil industry due to persistent weakness in the commodities sector. Therefore, the company is currently building a USD $120 million CPO processing plant in Central Sulawesi. This will be Astra Agro Lestari's third CPO processing plant.
Stock Performance Astra Agro Lestari:
Future Projection Financial Performance Astra Agro Lestari:
| 2013 | 2014 | 2015F | 2016F | 2017F | |
| Net Revenue | 12,675.0 | 16,305.8 | 15,118.8 | 16,938.0 | 18,739.0 |
| EBITDA | 3,420.0 | 4,259.0 | 3,218.0 | 3,916.0 | 4,661.0 |
| Net Profit | 1,801.0 | 2,504.0 | 1,149.0 | 2,135.0 | 2,564.0 |
| P/E Ratio (x) | 12.6 | 10.2 | 20.3 | 12.9 | 10.5 |
| PBV (x) | 2.7 | 2.3 | 2.3 | 2.0 | 1.8 |
in billion of IDR rupiah, unless stated otherwise
Source: CIMB Securities