AKR, Fuelling ahead, CLSA

AKR reported a strong FY11 result, with in line with CL estimates and 5% ahead of consensus. Revenue grew 82% and profit 142% YoY driven by a 50% increase in fuel volumes. The company remains well positioned in a growing industrial fuel consumption market and presents a unique option on retail fuel deregulation. Re-iterate BUY with Rp5,000/sh target price, implying 27% upside.


Strong FY11 result
AKR released audited FY11 results to the market. The earnings result was strong at 99% of CLSA estimates and 5% ahead of consensus estimates. Normalising for the contribution from sorbitol manufacturer Sorini, revenue grew 82% and profit 142% YoY driven by a 50% increase in fuel volumes. 4Q11 showed a reduction in fuel volume which was due to seasonality and an outage at AKR’s largest customer Freeport which has since been resolved.

Strong outlook for near term growth
We forecast 2,600 KL of fuel distribution in 12CL, a 27% growth on the 2011 achieved sales of 2,040 KL. Near term growth will be underwritten by unsubsidised fuel sales volume increases through additional demand from existing customers and winning new customers in the coal mining sector. The company currently has 8% market share in the unsubsidised fuel market in Indonesia and estimates it has 25% market share in Kalimantan.

Retail fuel deregulation is a medium term catalyst
A reduction in fuel subsidies in Indonesia during 1H12 brings us a step closer to a deregulated retail fuel market, presently planned for 2014. Indonesia remains underpenetrated in terms of fuel outlets with nearly half the number of neighbouring Philippines on a per capita basis, and we estimate AKR’s fuel outlets could grow at least 6-fold over the ensuing 4 years. Our 25% 3 year fuel volume CAGR is currently driven by industrial fuel sales growth only.

Re-iterate BUY with target price Rp5,000/sh
The strong 4Q11 result affirms our view of AKR being in CLSA Indonesia’s conviction basket. The company remains well positioned in a growing industrial fuel consumption market and presents a unique option on retail fuel deregulation. Our target price of Rp5,000/sh is based on 1x PEG for its fuel and chemical distribution business combined with DCF derived valuations for coal mining and logistics. The stock has 27% upside to our fair value.

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