Earnings beat expectation
Strong FY18 earnings on the cards. 3Q18 earnings came in at Rp340bn (-6.2% y-o-y, -20% q-o-q), trumping our expectations. AALI’s 9M18 earnings met our full-year forecast. The strong numbers were driven by a stronger-than-expected top-line performance – which was likely due to better-than-expected domestic ASP on a weaker IDR trend against USD, and still steady output performance despite AALI’s older-than-peer tree age. We raise our FY18 earnings forecast by 12% to Rp1.29bn (-36% y-o-y) on AALI’s lower ASP discount to our benchmark price assumption of 3% from 10% previously.
Where we differ: We like AALI’s efficiency and yield enhancement programmes. We expect EBITDA to continue to recover in FY18F, premised on higher fresh fruit bunches (FFB) yields, resilient average selling price (ASP) and expanded downstream operations. AALI’s production intensification and mechanisation programmes will continue to optimise operational efficiencies and yields, resulting in a steady long term profitability outlook.
Yield recovery, steady profitability positive for share price. We believe AALI’s share price will react positively to its improving profitability outlook on the back of its strong operational performance, coupled with CPO yield expansion.
Valuation: We employed DCF methodology (FY18F base year) to arrive at a fair value of Rp14,150/share (WACC 12.0%, TG 3%) post earnings revision. Our TP implies 15.4x FY19 PE, which is lower than its 5-year average of 20x.
Key Risks to Our View: CPO price. There would be downside risks to our CPO price forecasts if Pertamina’s biodiesel off-take fails to live up to our expectations of 3.1m MT this year.
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