AKR Corporindo (AKRA IJ; BUY; TP IDR5,650): 1Q14 results review - Lower Than Expected

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AKR Corporindo (AKRA IJ; BUY; TP IDR5,650): 1Q14 results review - Lower Than Expected

AKR Corporindo’s 1Q14 earnings reached IDR180bn (+46.3% q-o-q; +14.4% y-o-y), ie below 20% to our FY14 bottomline. This was mainly on lower than expected petroleum sales volume. Thus, we cut 2014/2015 earnings by 11.3%/6.1% as we incorporate the 1Q14 figure. Despite this, we suggest that the company still has protected upside at our lower SOTP-based IDR5,650 TP. Maintain BUY.

       1Q14 highlights. 1Q14 revenue declined 8.7% q-o-q to IDR5.6trn. This was mainly driven by lower petroleum revenue (-8.9% q-o-q) on lower demand from key customers like Freeport due to the stoppage of mining activities as a result of the laws banning the export of ore minerals. Given the company’s strong cost and operational controls, 1Q14 operating margins were relatively stable at 4.0% vs 4.1% in 4Q13. Quarterly interest expense fell 66.9% q-o-q to USD23m, as net gearing fell to 82.2% in 1Q14 vs 90.6% in 2013. AKR Corporindo also experienced a IDR13bn forex gain in 1Q14 vs a IDR68bn forex loss in 4Q13. This forex gain and lower interest expense brought 1Q14 pre-tax profit to IDR225bn (+63.5% q-o-q).

       Decline in petroleum sales volume. 1Q14 petroleum sales volume declined 11.5% q-o-q to 437,600 kilo litres (kl) while a slight pickup in ASPs, benchmarked to Mean of Platts Singapore (MOPS) prices, was able to keep petroleum revenue declining by only 8.9% q-o-q.

       Outlook. Indonesia’s logistics business is expected to increase 14.7% y-o-y to IDR1,816trn this year. We believe AKR Corporindo is among the very few integrated distribution and logistics companies capable of riding on the country’s logistics growth.

       Valuation. We lower our SOTP-based TP to IDR5,650 (from IDR6,000), as we cut earnings by 11.3% (2014) and 6.1% (2015) mainly on the lower than expected petroleum sales volume in 1Q14. Yet, we maintain our BUY call as the stock still provides attractive upside. Our BUY call is premised on the company’s strong infrastructure and logistics advantage as well as premium industrial asset quality.

Best regards,

RHB OSK Indonesia Research Institute

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