Company Focus

ASTRA AGRO LESTARI 2-Aug-11

Ticker Price Target Price Recommendation Upside (Downside) Market Cap (Rptn) Issued Share (mn share) Shareholders PT Astra International Tbk. Public 79.7% 20.3% 2010 Revenue (Rpbn) EBITDA (Rpbn) Net Profit (Rpbn) EPS (Rp) Gross Margin (%) EBITDA Margin (%) Net Margin (%) Net Gearing (x) 8,844 3,249 2,017 1,281 40.8% 36.7% 2011F 10,867 4,348 2,653 1,685 43.3% 40.0% AALI 23,500 24,350 HOLD 3.6% 37 1,575

Consistently Growing
We are initiating our coverage on Astra Agro Lestari with a HOLD recommendation on a 12M target price of Rp24,350/share, represents 3.6% upside gain. We view Astra Agro Lestari has advantages on large plantation area, healthy balance sheet and the company focus in upstream business. Old aging profile plantation will not likely impact AALI as the company managed to implement intensification program that keeps yield level stable at 22.5 tons/ha for its nucleus plantation. Investor may also reap gain from annual dividend payment reputation AALI hold for some years now. Biggest CPO plantation area among listed plantation companies. AALI recorded the biggest CPO plantation area in Indonesia among listed plantation companies up to 263,788 ha in 2010. Mature plantation covers up to 77.3% of total plantation area in 2010. Expanding through organic growth and increases production capacity. Despite moratorium policy recently issued by Indonesian government, AALI will maintain its growth by acquiring more plantation area with targeted area up to 5k 6k of new plantation each year. The company also aims to develop more mills to catch up with organic growth strategy. This year, AALI plans to build four palm oil processing mills and expects to complete the construction of two mills. Replanting to secure long-term returns. With current average plant age at 16 years, AALI has started replanting program since year 2009. However, AALI also does replanting for estates that were not meeting production targets based on plant age and agronomic aspects. As the replanting will carry out over a five year period, AALI will likely benefit in five years forward, yet would benefit from third parties FFB so the replanting activities may not affect AALI overall performance. Intensifying R&D efforts. To be able to maintain sustainable growth, AALI focuses in intensification program to improve the productivity of mature plants and in intensifying R&D efforts with an objective to produce AALI own high yield planting materials. Since 2008, the company has implemented intensification program to work on issue of old-aging profile plantation. The program helps AALI to achieve improved yields and greater cost efficiency. Key projects includes enhances the superior planting material that speed up the relatively cycle in plantation. AALI has managed to reused the empty FFB bunches, fiber, shells, and liquid waste as fertilizer and fuel. Strong balance sheet and relatively stable dividend payout. AALI showed a healthy balance sheet by keeping net gearing at net cash for some period of time. A healthy balance sheet allows company to expand more rapidly through internal activities or strategic acquisitions. The company also proved to distribute dividend at 65% ratio. This keep AALI as a stable dividend paying stock and can be main investing consideration for stable dividend paying stock. Valuation. Going forward, we expects AALI to post stable growth next years and forward as the company targets to increase shareholders value. With healthy balance sheet and almost to zero net debt, AALI has ample flexibility for financing. We initiate Hold recommendation on AALI which currently trading at 2011F & 2012F PER of 15.0x & 13.9x and EV/EBITDA of 8.7x & 8.3x respectively.

22.8% 24.4% net cash net cash

Sheila Yovita sheila.yovita@ocap.co.id

Year-end 31-Dec Revenue (Rpbn) EBITDA (Rpbn) Net Profit (Rpbn) EPS (Rp) EPS growth (%) DPS (Rp) Dividend Yield (%) P/E Ratio (x) EV/EBITDA (x) Return on Equity (%) Net Gearing (%)

2008 8,161 3,521 2,631 1,671 33.32% 505 0.0 14 10 51.0% net cash

2009 7,424 2,890 1,661 1,055 -36.88% 685 0.0 22 13 26.7% net cash

2010 8,844 3,249 2,017 1,281 21.45% 830 0.0 18 11 28.0% net cash

2011F 10,867 4,348 2,653 1,685 31.54% 1,724 0.1 15 9 30.8% net cash

2012F 11,845 4,275 2,751 1,747 3.71% 1,788 0.1 14 8 28.3% net cash

Astra Agro Lestari Operational View

Focus in upstream oil palm plantation business AALI is engaging in upstream value chain of oil palm plantation. The activities limited to planting, harvesting and processing palm fruits into CPO and benefits from sales of Crude Palm Oil (CPO) and Palm Kernel Oil (PKO). In the near to medium term, AALI will keep focusing in upstream oil palm plantation business. In 2010, the company decided to minimize its rubber plantation activities. The medium term strategies would including plantation area expansion, increasing cost efficiency and production capacities by developing more plantation mills. Biggest planted area among listed plantation companies in Indonesia At the end of 2010, AALI recorded having the biggest planted area among listed plantation companies in Indonesia with total planted area up to 263,788ha. Compared to 1H11, the company posted slight increase of planted area to 264,683ha. Mature area accounted most, 77.3% of total planted area and although the mature area accounted less during 2007 2009 of total planted area, AALI is experiencing growing contribution from mature area to total planted area. With the increasing mature area to total planted area, the immature area contributed lower of total planted area. However, the nucleus mature area were more volatile hence affect most of the changes to overall mature planted area. For plasma plantation, the mature area procentage to total planted area contributed steady level at average accounted for 20.2% of total planted area during 2006 2010 and in 1H11 accounted for 21.1% of total planted area to 55,721ha.
Exhibit 1: Plantation Profile
2006 2007 2008 2009 2010 CAGR 1Q10 1H10 QoQ (%) 1Q11 1H11 QoQ (%) YoY (%)

Total Planted Area Mature

218,758 186,302

238,191 188,787

251,391 184,199

264,544 192,368

263,788 203,547

4.8% 2.2%

265,183 207,889

265,764 207,846

0.2% 0.0%

264,745 220,763

264,683 220,740

-0.02% -0.01%

-0.4% 6.2%

Procentage to Total Growth

Immature

85.2%
32,456

79.3% 1.3%
49,404

73.3% -2.4%
67,192

72.7% 4.4%
72,176

77.2% 5.8%
60,241 16.7%

78.4%
57,294

78.2%
57,918 -3.9%

(23)
43,982

83.4% 6.2%
43,943 -0.1% -24.1%

Procentage to Total Growth

Nucleus Plantation

14.8%

20.7% 52.2%
182,470

26.7% 36.0%
194,217

27.3% 7.4%
207,305

22.8% -16.5%
206,549 6.0%

21.6%

21.8%

16.6%

16.6% -24.1%
207,444 0.2% -0.5%

163,482

207,944

208,525

1.0%

207,059

Procentage to Total
Mature

74.7%
140,327

76.6%
141,754

77.3%
134,732

78.4%
139,875

78.3%
148,273 1.4%

78.4%
152,615

78.5%
152,572 2.9% 165,042

78.4%
165,019 0.0% 8.2%

Procentage to Total
Sumatera Kalimantan Sulawesi Java Immature

64.1%
53,625 59,423 27,243 36 23,155

59.5%
55,301 59,198 27,255 40,716

53.6%
53,882 53,294 27,556 59,485

52.9%
53,496 57,603 28,776 67,430

56.2%
51,951 68,479 27,843 58,276

57.3%
-0.8% 3.6% 0.5% n/a 26.0% 16.8% 21.4% 58.7% 0.0% 0.9%

57.6%
n/a n/a n/a n/a 55,329

57.4%
n/a n/a n/a n/a 55,953 -4.0%

62.3%
n/a n/a n/a n/a 42,017

62.3%
n/a n/a n/a n/a 42,425 1.0% -24.2%

Procentage to Total
Sumatera Kalimantan Sulawesi Java Plasma Plantation

10.6%
3,573 17,519 2,063 55,276

17.1%
4,255 33,711 2,242 508 55,721

23.7%
7,204 41,509 10,264 508 57,174

25.5%
8,314 46,317 12,291 508 57,239

22.1%
6,639 38,052 13,077 508 57,239

20.9%
n/a n/a n/a n/a 57,239

21.1%
n/a n/a n/a n/a 57,239 0.0%

15.9%
n/a n/a n/a n/a 57,686

16.0%
n/a n/a n/a n/a 57,239 -0.8% 0.0%

Procentage to Total
Mature

25.3%
45,975

23.4%
47,033

22.7%
49,467

21.6%
52,493

21.7%
55,274 4.7%

21.6%
55,274

21.5%
55,274 0.0% 0.0% 55,721

21.6%
55,721 0.0% -22.7% 0.8% -22.7%

Procentage to Total
Immature

21.0%
9,301

19.7%
8,688

19.7%
7,707

19.8%
4,746

21.0%
1,965

20.2%
-32.2%

20.8%
1,965

20.8%
1,965

21.0%
1,965

21.1%
1,518

Procentage to Total
Sumatera Kalimantan Sulawesi Java

4.3%
47,206 8,070 -

3.6%
47,651 8,070 -

3.1%
47,818 1,286 8,070 -

1.8%
47,818 1,351 8,070 -

0.7%
47,818 1,351 8,070 0.3% 2.5% 0.0% 0.0%

0.7%
n/a n/a n/a n/a

0.7%
n/a n/a n/a n/a

0.7%
n/a n/a n/a n/a

0.6%
n/a n/a n/a n/a

Source: Company

With mature area accounted more to total planted area, in the near term, AALI will likely to benefit more cash flow even with lower selling prices of CPO. In a downturn cycle, plantation companies prefer to secure larger mature area as it would minimize the heavy cash flow needed in initial phase of plantation. Prefers Moderate Growth Despite the 2-year moratorium policy on new permits to convert natural forests and peatlands that may limit the land reserves for expansion, AALI tries to keep maintaining growth conservatively by acquiring more plantation area of minimum 5th 6th each year and within this year, AALI is in the process to finalize the plan to acquire 10th ha plantation located in Kalimantan. AALI also kept improving production by increasing production capacities to catch up with new planting and replanting activities. New mills will be needed with increasing immature area. This year, the company plans to build four palm oil processing mills and expects to complete two mills construction before ended the year with total capacity up to 45tonnes/hour and 30tonnes/hour.

Astra Agro Lestari

Exhibit 2: Mills
As of 31 December 2011 Palm oil mills Kernel processing units Units 24 6 Total Capacity 1,125 FFB/hour 700 tons/day

Source: Company

Replanting Activities Increases During the year 2006 2010, new planting activities was reduced significantly with CAGR -29.6% while replanting activities grew at CAGR 33.5%. These are inline with CAGR of mature plantation during 2006 2010 at only 2.2% while immature plantation recorded CAGR at 16.7%. Higher replanting activities will help AALI with its limited landbank and aging plantation profile. Currently, AALI plantation area averaging at 16 years of age. Oil palm plantations regarded as a long business cycle as FFB took 3 years to be harvested and replanting is needed when the tree reached 25 years of age. Effects from new planting activities occured in 2006 to 2008, started to be seen in year 2009 where mature area increased 4.4% YoY and in 2010 increased 5.8% YoY. The slowing growth of new plantation will likely to be offset by replanting that occured in 2009 and 2010 where the effect will likely to take place in 2011 and forward. We foresee, AALI will keep its replanting program in the near term following the moratorium policy that limit the massive additional plantation area and limited landbank.
Exhibit 3: New Planting and Replanting (in ha)

25,000 20,000 15,000 New Planting (ha) 10,000 5,000 2006 2007 2008 2009 2010 Replanting (ha)

Source: Company

Reaping Benefit from Intensification Program Since 2008, the company has been implementing the intensification program that keep FFB yield stable with average 21.4tons/ha for nucleus plantation. Yet without the intensification program, the yield may be decrease as seen for plasma plantation yield. The intensification programs are done by replanting on areas that had passed productive age and expansion of plantation areas. They cover mechanization, water management, soil treatment, and pollination in order to increase the quantity and quality of FFB. Fertilization as the most important thing in oil palm plantations tries to get improvement to increase production in relatively shorter time on existing areas. AALI also has been cooperating to develop own seed garden in Central Kalimantan along with the seed processing unit which will likely resulted in its ability to produce own high quality seed.
Exhibit 4: FFB Yield for Nucleus and Plasma Plantation
30.0 25.0 20.0 15.0 10.0 5.0 0.0 2006 2007 2008 2009 2010 20.2 19.3 20.0 19.4 21.6 20.8 18.2 16.4 Nucleus Plantation (tons/ha) Plasma Plantation (tons/ha)

23.9

22.5

Source: Company

Astra Agro Lestari Financial View

Capital Intensive Oil palm plantations are capital intensive business, requires more investments in raw materials and processing costs including seeds and fertilizer and in developing CPO processing mills that require at estimated cost about Rp90bn 100bn each and must be built 18 months before harvesting period. Major plantation companies that face volatilities in products prices tend to have conservative balance sheet and carrying low debt levels in proportion to their capital. Yet AALI records strong balance sheet with net gearing at net cash for some period of time. Strong balance sheet may benefit AALI for financing its expansion. We estimate the company to generate free cash flow up to Rp2.5tn in 2011F and 2012F. Given its healthy balance sheet, the company will likely have ample flexibility to acquire more landbanks and or to finance its yearly capital expenditure.

Relatively Stable Dividend Payout The company also proved to distribute dividend at relatively 65% payout ratio. This keep AALI as a stable dividend paying stock and will likely to be investor main investing consideration into buying the stable dividend paying stock.
Exhibit 5: Dividend and Net Income
3,500 3,000 2,500 2,000 1,500 1,000 787 500 2006 2007 2008 2009 2010 325 815 505 1,973 1,661 Dividend (Rp/share) Net income (Rpbn) 685 830 2,631 2,929

Source: Company

Impressive 1H11 Results AALI ended 1H11 with impressive 99.0% YoY growth in net income to Rp1.3 from Rp662.0bn in 1H10. The increase was backed by robust growth in the companys revenue that increased 50.6% YoY to Rp5.3tn from 1H10 Rp3.5tn that driven from combination of higher sales volume and selling price. FFB processed was up to 2.6mn tons from last year same period 2.0mn tons, grew 20.2% YoY. However, the increases was helped by 111.3% YoY growth from FFB third parties that accounted to 18.0% of total FFB processed, up from 11.2% contribution in 1H10. The higher FFB processed from third parties helped AALI to record higher CPO sales volume that increased 18.7% YoY growth to 566.8th tons from 1H10 at 477.6th tons. AALI posted higher selling price that increased 21.6% YoY to Rp8,013/kg compared to 1H10 at Rp6,590/kg. However, AALI recorded lower gross profit margin in 1H11 at 38.9% YoY from 34.9% in 1H10. This was due to higher raw materials used and processing costs that grew 101.2% YoY higher to Rp1.8tn from Rp963.3bn in 1H10. The increases in raw materials used and processing costs had seen in 1Q11 that grew 100.4% YoY to Rp870.4bn from Rp434.3bn in 1Q10. This translates into slight increased QoQ in raw materials and processing accounts at 1.2% QoQ to Rp881.1bn from Rp870.4bn in 1Q11. With only 19.5% YoY growth in 1H11 operating expenses, AALI posted higher operating income margin to 32.7% from 1H10 at 27.1%, and with higher other income in 1H10 from loss in 1H10, AALI recorded 93.3% YoY growth in 1H11 to Rp1.8tn in pre-tax profit from Rp918.8bn in 1H10 that led into 99.0% YoY growth in net profit 1H11 to Rp1.3tn compared to last year period at Rp662.0bn in 1H10. On quarterly basis, AALI recorded declining revenue -8.4% QoQ to Rp2.5tn in 2Q11 from Rp2.8tn in 1Q11 driven by -3.2% decline in CPO selling price. The selling price in 2Q11 was at Rp8,013/kg compared to Rp8,278/kg in 1H11. Lower revenue led to lower cost of goods sold that declined -8.3% QoQ to Rp1.5tn from 1Q11 at Rp1.7tn and posted operating income declined 11.3% QoQ to Rp814.7bn from 1Q11 at Rp918.8bn. However, increase in other income helped AALI to record slightly lower net profit that declined -6.9% QoQ to Rp635.1bn from 1Q11 at Rp682.2bn.

Astra Agro Lestari Valuation

Moderate growth After recording declining total planted area in 2010 due to divestment CPO subsidiary, we foresee AALI will likely to add planted area in 2011 forward. However, AALI may keep the moderate growth in new plantation as recent moratorium issue and time needed to add plantation area. However, the moderate growth in new plantation area may be offsetting by increasing trend in replanting area. We expects AALI to record stable growth in replanting at average 4.0% to old-age plantation. This would be higher than average growth at 2.3% during year 2007 2010 yet we opt for increasing trend in replanting activities compared to new planting activities. With average FFB yield/ha at 23.0tons/ha for nucleus plantation and 16.0tons/ha for plasma plantation, we forecasts AALI to harvest up to 4.3mn tons of FFB this year, in which AALI has recorded 50.4% in 1H11. Meanwhile, FFB processed from third parties, we expects to record 35% YoY growth in 2011 to 833.1th tons in 2011 and 50% YoY growth forward. For CPO extraction rate, we assume to be at rate 23.0% and Kernel extraction rate at 4.9% translates into CPO sales volume at 1.2mn tons and Kernel sales volume at 162.2th in 2011. Prone for uncontrollable factors, we assume selling price for CPO AALI at Rp8,000/kg and selling price for Kernel at Rp5,000/kg. This will translate 2011F revenue at Rp10.9tn, a 22.9% YoY growth from Rp8.8tn in 2010. The company posted 48.7% in 1H11 revenue at Rp5.3tn.
Exhibit 6: AALI CPO Prices vs CPO CIF Rotterdam
8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2006 2007 2008 2009 2010 CPO CIF Rotterdam (US$.tonne) CPO AALI (Rp/kg)

Source: Bloomberg, Company

We expects AALI to record 13.7% YoY higher EBITDA in 2011 and up to Rp2.5tn of free cash flow in 2011 and 2012 and maintain net cash for net gearing ratio. These translates into fair value of shares for 2012 at Rp24,350, reflecting a 3.6% potential gain from closing price at Rp23,500 per share. AALI would be trading at 2011F/2012F PER of 15.0x and 13.9x; EV/EBITDA of 8.7x and 8.3x.

Astra Agro Lestari

Exhibit 7: Astra Agro Lestari 1H11 results
Rpbn Revenue Gross Profit Operating Income Other Income Income Tax Minority Interest Net income Gross Margin Operating Margin Net Margin 1H10 3,518 1,226 954 (35) (257) 662 34.9% 27.1% 18.8% 1H11 5,297 2,059 1,734 42 (459) 1,317 38.9% 32.7% 24.9% 99.0% 11.5% 20.7% 32.2% % YoY 50.6% 67.9% 81.7% n/a 78.6% 3Q10 5,718 2,211 1,792 (34) (481) (50) 1,227 38.7% 31.3% 21.5% 4Q10 3,122 1,397 1,205 (1) (379) (37) 789 44.7% 38.6% 25.3% 1Q11 2,765 1,076 919 9 (246) 682 38.9% 33.2% 24.7% 2Q11 2,532 983 815 33 (213) 635 38.8% 32.2% 25.1% -6.9% -0.3% -3.2% 1.6% QoQ (%) -8.4% -8.7% -11.3% 257.6% -13.4%

Astra Agro Lestari

Rpbn Revenue COGS Gross Profit EBITDA Operating Cost Operating Profit Other Inc. / Exp. Pre- Tax Profit Income Tax Minority Interest Net Profit Rpbn Cash & Investment Receivable Inventories Other Curr. Liabilities Fix Assets Other Assets Total Assets Account Payables Other ST Liabilities Long Term Debt Other LT Liabilities Total Liabilities Equity

2007 5,961 2,774 3,187 3,105 281 2,906 14 2,920 (880) (66) 1,973 2007 1,013 115 414 106 2,431 1,274 5,353 170 858 123 1,151 4,061 2007

2008 8,161 4,358 3,803 3,521 426 3,377 572 3,949 (1,234) (84) 2,631 2008 868 25 781 302 2,602 1,942 6,520 305 711 167 1,183 5,156 2008 3,938 414 16 6,242 2,586

2009 7,424 4,322 3,102 2,890 492 2,610 (110) 2,500 (771) (69) 1,661 2009 789 157 610 159 3,174 2,683 7,571 249 690 206 1,145 6,226 2009 4,295 386 16 7,027 4,070

2010 8,844 5,234 3,609 3,249 611 2,999 (35) 2,964 (860) (87) 2,017 2010 1,241 99 625 87 3,768 2,973 8,792 386 676 273 1,335 7,212 2010 4,235 619 16 8,000 5,000

2011F 10,867 6,160 4,707 4,348 644 4,063 (417) 3,646 (912) (82) 2,653 2011F 2,252 121 735 123 4,283 2,773 10,287 454 683 278 1,415 8,612 2011F 4,350 835 16 8,000 5,000

2012F 11,845 7,218 4,627 4,275 671 3,956 (174) 3,782 (945) (85) 2,751 2012F 2,858 132 861 105 4,764 2,822 11,542 532 679 331 1,543 9,715 2012F 4,405 1,253 16 8,000 5,000

Rpbn Net Income Depreciation Chg. In Working Capital CF from Operation Capex Others CF from Investment Change in Debt Others CF from Financing Net Cash Flow Cash at Start Cash at End

2008 2,631 144 (466) 2,309 (316) (638) (954) (5) (1,495) (1,500) (145) 1,013 868 2008

2009 1,661 280 105 2,046 (852) (721) (1,573) (552) (552) (79) 868 789 2009 -9.0% -18.4% -22.7% -17.9% -36.9%

2010 2,017 250 238 2,506 (844) (245) (1,089) (965) (965) 452 789 1,241 2010 19.1% 16.4% 14.9% 12.4% 21.4%

2011F 2,653 285 (94) 2,844 (800) 215 (585) (1,247) (1,247) 1,011 1,241 2,252 2011F 22.9% 30.4% 35.5% 33.8% 31.5%

2012F 2,751 319 (45) 3,026 (800) (26) (826) (1,594) (1,594) 606 2,252 2,858 2012F 9.0% -1.7% -2.6% -1.7% 3.7%

Growth (%) Revenue Gross Profit Operating Profit EBITDA Net Income

36.9% 19.3% 16.2% 13.4% 33.3%

Key Assumption FFB Harvested ('000 tonnes) FFB Third Parties ('000 tonnes) FFB Yield (tons/ha) CPO ASP (Rp/kg) PKO ASP (Rp/kg)

Others (%) Gross Margin Operating Margin EBITDA Margin Net Margin ROE ROA Net Gearing Valuation (x) PER PBV EV/EBITDA

46.6% 41.4% 43.1% 32.2% 51.0% 40.4% net cash

41.8% 35.2% 38.9% 22.4% 26.7% 21.9% net cash

40.8% 33.9% 36.7% 22.8% 28.0% 22.9% net cash

43.3% 37.4% 40.0% 24.4% 30.8% 25.8% net cash

39.1% 33.4% 36.1% 23.2% 28.3% 23.8% net cash

3,744 297 16 7,134 3,742

14.1 7.2 4.1

22.3 5.9 12.1

18.3 5.1 12.3

15.0 4.6 8.7

13.9 3.9 8.3

Astra Agro Lestari

RESEARCH
Bagus Hananto bagus.hananto@ocap.co.id (62-21) 3190-1777 ext. 219

Sheila Yovita

sheila.yovita@ocap.co.id

(62-21) 3190-1777 ext. 220

EQUITY SALES
Dick Hermanto dick.hermanto@ocap.co.id (62-21) 3162-063

Widya Halim

halim.widya@ocap.co.id

(62-21) 3162-072

Maria Fransisca

maria.fransisca@ocap.co.id

(62-21) 3162-062

Chelsia Chen

chelsia.chen@ocap.co.id

(62-21) 3162-074

Agi Susanti

agi.susanti@ocap.co.id

(62-21) 3162-075

Supardi

supardi@ocap.co.id

(62-21) 3162-025

Tomy Adrianto

tomy.adrianto@ocap.co.id

(62-21) 3162-075

PT ONIX Capital Tbk.

Deutsche Bank Building #15-04 Jl. Imam Bonjol No. 80 Jakarta 10310 Indonesia Phone. (62-21) 3190-1777 (hunting) Fax. (62-21) 3190-1616

Rating Definitions
BUY: HOLD: SELL : We expect this stock to give total return of above 15% over the next 12 months. We expect this stock to give total return of between -15% up to 15% over the next 12 months. We expect this stock to give total return of -15% or lower over the next 12 months.

DISCLAIMER:
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