AKRA:Priced-in catalysts - Mandiri Sekuritas

AKRA will distribute 30.5% of the gains from Sorini divestment in the form of special dividend amounting to Rp135/share or equivalent to 8.4% dividend yield. Using proceeds from Sorini divestment, AKRA repaid most of its debts and now is in net cash position. Volume growth this year (+35.0%yoy) should come from both the expansion to the East Indonesian market and higher allocation of subsidized fuel (+82.7%yoy). In addition, rising oil price is also an advantage for AKRA. However, at adjusted PER11-12F of 20.6-16.2x, we view that market might have priced in these positives; therefore, we have Neutral stance on AKRA.

Special dividend yield of 8.4%. AKR Corporindo announced a special dividend of Rp135/share or equivalent to 8.4% dividend yield. The Rp512bn special dividend represents 30.5% dividend payout taken from the gain derived from Sorini divestment. This ratio, in line with our expectation, is in line with the company’s historical dividend payout rate. The dividend ex-date will be on 14 March 2011.

Strong balance sheet with net cash position. AKRA got Rp2.2tn proceeds from SOBI divestment. Based on the company’s management, it used most of the excess cash for debt repayment, except for the US$75mn debts in Jakarta Tank Terminal and AKR China operation. We estimate its net gearing ratio by the end of this year will be -0.1x, which mean the company will be in net cash position.

FY11F volume growth of 35.0%yoy. We estimate petroleum sales volume could reach 1.8mn kl (+35.0%yoy). The catalysts should come from higher allocation of subsidized fuel (+82.7%yoy) and expansion to the East Indonesian market for non- subsidized fuel segment. In East Indonesia, the company serves mining companies in Papua and fishing vessels in Maluku, taking advantage of the government’s target to increase fishery production. In addition to volume g rowth, it also enjoys rising oil price of +14.0%yoy or US$90/barrel in our assumption.

Neutral on AKRA. Using 13.5% WACC and 5.0% TG rate, we arrived at TP of Rp1,600/share. Our TP is reduced from the previous one after factored in the special dividend payment and higher WACC due to capital structure shift to equity. At current market price, AKRA is trading at adjusted PER11-12F of 20.6-16.2x, which may indicate the positive outlook might have been priced in. The main risks are unfavorable changes in government regulations and declining oil prices.