AKR Corporindo (AKRA IJ, Rp3,075 BUY) 1H11 results - Danareksa

Core profits surged twofold yoy in 1H11 to Rp256bn. This is ahead of our expectations as the number is 57% of our full year forecast. The strong profits come on the back of higher-than-expected sales from the distribution of both petroleum and basic chemicals. Petroleum sales volume was within AKRA’s full year estimate of 1.8m Kl, although prices were up strongly on the back of higher crude oil prices in 2Q11, on average increasing from US$94.5 to US$101.7, 1Q11 and 2Q11, respectively. For basic chemicals, the sales revenues jumped 32% YoY. This owed to higher-than-expected ASP of over Rp2,000/Kg (up 17% YoY). BUY recommendation maintained with our forecast rolled out to FY12 and incorporated higher petroleum ASP. Our TP of RP3,225 implies PE 17.1x-13.9x FY12F-FY13F.

Sales volume within expectation whereas price beat our forecast
Revenues reached Rp9,061bn in 1H11 or up 74% YoY supported by AKRA’s main trading and distribution business line. Petroleum sales volume surged 81% YoY to 997,223 Kl in 1H11 or almost 50% of our 2m Kl full year forecast. As for petroleum’s ASP, they surpassed Rp7,000/l in 1H11 (up 32% YoY). For basic chemicals, sales volume grew 13% YoY in 1H11 to 611,166 Mt (51% of our full year forecast) while the ASP increased to over Rp2,000/Kg (11% higher than our estimate).

The excellent results show that AKRA still enjoys a strong competitive advantage thanks to its extensive network and the fact that the business is highly capital intensive which means it is difficult for new entrants to come in. There are concerns, however. These center on the ability of AKRA’s customers to undertake backward integration - thereby raising doubts on the sustainability of AKRA’s petroleum business model. Looking ahead, we believe AKRA’s core business of trading and distributing energy related products can be supported by coal distribution. All things considered, we raise our FY11F-FY12Y revenues estimates by 7% - 11%, incorporating 10% higher petroleum ASP.

Better cash management
Manageable working capital, less cash tied-up in the form of inventory and account receivables, along with looser payments on its accounts payables slashed the company’s cash cycle days from 56 in 1H10 to 12 in 1H11. In 1Q11, cash cycle days were 24 days.

Interim cash dividends
An interim cash dividend of Rp200 per share will be paid on September 8, 2011, amounting to RP764bn in total. This is in addition to the special interim cash dividends of RP513bn paid earlier this year. The remainder of the Rp1.6tn of funds from the Sorini divestment, amounting to Rp408bn, still sits in AKRA’s books. Assuming AKRA will disburse this entire amount in the form of dividends, the FY11 dividend yield would be pushed up by 4% to 15%.