Astra Agro Lestari (AALI IJ, Rp22,300 HOLD) AALI's January production - Danareksa Sekuritas

Highlights:

l FFB production reached 259,499 tons for nucleus and 74,083 tons for plasma. This is 11.1%-10.2% higher than January 2010’s production.

l Supporting the growth is the substantial improvement in the FFB yield to 1.5ton/ha, up from 1.4ton/ha last year (+7.1% YoY) thanks to robust production growth in Sumatra and Kalimantan at 11.8% and 27.8%, respectively.

l The CPO extraction rate (OER), however, declined slightly to 22.8% in January 2011, from 23.8% in January 2010. CPO production, consequently, reached 92,116 tons (+17.3% YoY) – helped also by FFB processed from third parties.

Comments:

l More third party purchases. Note that the company’s third party purchases have increased to around 20% of the internal production from 10% in May 2010. This is largely because of the aging plantations profile. As such, third party FFB purchases increased by 143% to 70,163 tons in January 2011.

l The FFB yield is likely to decline slightly to 19.4ton/ha. Annualized, the implied yield would be around 19.9ton/ha, assuming January’s production is about 7-8% of the total annual production. We, however, conservatively estimate a lower yield of 19.4ton/ha (much lower than BWPT’s yield of more than 25.0ton/ha). This owes to the aging plantations profile, exacerbated by a lack of fertilizer application in plasma areas and bad weather.

l Land bank is still an issue. Mid-term production growth is likely to come from the 2007 plantings of 16,800ha, which shall begin to mature this year, albeit still yielding a low 3-4ton/ha. Extraction rates of palm oil and palm kernel are likely to stay at the 22-23% and 5% levels, respectively. We therefore expect CPO production to reach 1.1mn tons in 2011, up a mere 4.7% YoY. Expansion will slow as new land bank is limited.

l Maintain HOLD. Our TP of Rp24,500 is based on 16.5x 2011E PER, a 1.0x std-deviation to the sector’s 7-year mean, taking into account the current CPO price momentum as supply constraints prevail.