Astra Agro Lestari - 2Q11/1H11 in a Snapshot - Citigroup

 Higher volumes and prices key earnings driver in 1H11 — The combination of higher CPO prices (+22% YoY to Rp8,013/kg) and higher CPO sales volumes (+19%
YoY to 567k tons) led to the 51% surge in revenues to Rp5,297bn (50% of CIRA
FY11E and 51% of Consensus). The strong revenue performance helped cushion the
41% YoY increase in COGS to Rp3,238bn, which stemmed from the 82% higher raw
material and processing costs to Rp1,752bn (54% of total COGS) primarily due to higher 3rd party purchases (+152% YoY to 475k tons). Overall, net profit jumped 100% YoY to Rp1,270bn and accounted for 44% of CIRA FY11E and 47% of consensus’.

 2Q11: Positive YoY but negative QoQ — On a quarterly basis, a reverse trend can be seen. The 6% QoQ decline in CPO prices and 1% of CPO volumes (Fig 4) translate to
an 8% QoQ drop in revenues to RP2,532bn. But with COGS also 8% QoQ lower, the overall decline in the bottom line was only at 6% QoQ to Rp616bn. But YoY, it is still registering positive growth both on the top and bottom line. Revenues grew 34% YoY on higher volumes and prices while net profit grew 69% YoY. (Fig 2)

 Demand outlook remains favorable — Despite the slower sales performance in 2Q11, we remain optimistic that the upcoming Muslim festivities would help boost demand for CPO in 3Q11 and would be a key demand driver for AALI, which is primarily a local CPO player.

 CPO prices should stay firm despite rising output in 2H11 — While the market fears increased CPO production in 2H11, it has in our view failed to realize that much of the increased output would be easily absorbed by the market given shortfalls in competing as well as more expensive oils such as soya oil and rapeseed oil. Hot and dry conditions in key crop producing areas in the US and initial harvesting in Europe suggest low rapeseed yield. These factors should help keep CPO prices afloat in the above US$1,000/t level. AALI, as a pure CPO play would benefit.