Astra Agro Lestari, Disappointing 1Q12 Results on Lower CPO ASPs and Higher Costs; Reiterate Sell, Citi

 1Q12 in a snapshot — CPO sales volume grew 5.2% YoY to 299k tons (23% of our
FY12E of 1.31m tons) but was insufficient to curb the negative impact of the 6.9% YoY
drop in CPO ASPs to Rp7,706/kg. Hence, revenues dropped 7% YoY to Rp2.6trn (20%
of CIRA FY12E; 22% consensus). This, along with higher COGS and OPEX (+9% YoY
and 32% YoY respectively) subsequently led to margin deterioration and dragged down
earnings by 42% YoY to Rp378bn (13% of CIRA FY12E and 14% consensus). Fig 2-5.


 Higher costs – Higher costs stemmed from higher a) salaries and wages costs (due to
inflation and higher minimum wage costs, b) fertilizer costs (on higher oil prices), c)
maintenance costs (tools, spare parts etc). See Figures 6 to 9.

 Difficult to play catch up; Lowering our estimates – In the past 6 years, true there
were 3 instances wherein 1Q net profits only account for 13-14% of FY numbers. But
worth noting that for AALI to play catch-up on the remaining quarters during those
years, it a) required over 20% increase in ASPs in 2Q, b) uptrends in CPO prices over
the remaining quarters and/or c) double digit growth in volumes at least in 2Q (see Fig
3). Meanwhile, a) 2Q12 CPO spot prices thus far is only 8% higher than 1Q12, b) we
expect CPO prices to potentially peak in 2Q12, and c) we expect a single digit CPO
prod’n volume growth in FY12 (+3.2% YoY to 1.31m tons). Overall, although we expect
AALI to fare better in 2Q12 sets of earnings (higher ASPs and volumes), we remain
wary that AALI would not be able to meet ours or consensus’s current FY12 estimates.
As such, we lower our 2012-2013E earnings estimates by 20-25% accordingly (Fig 1).

 Reiterate Sell; Lower TP – Following our downwards earnings revisions to factor in
higher costs and lower ASPs, we also lower our TP to Rp15,900 (prev. Rp21,300). With
our expectations of a weaker CPO price environment, slower production growth
(relative to peers) and higher cost environment, we reiterate our view that AALI would
be the most vulnerable relative to its peers in a CPO price downturn.

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