AKRA - Solid growth outlook

• AKRA’s 1Q22 net profit rose 40.2% YoY to Rp428bn, representing 32.2% of our FY estimate 

• We expect petroleum and chemical volumes to grow 8% YoY and 10% YoY, respectively in 2022, supported by soaring commodity prices, supportive policies, and economic recovery. We also anticipate JIIPE land sales to reach 40 ha, driven by SEZ status, ecosystem formed by Freeport smelter, and Omnibus Law. AKRA‐BP plans to open 25 petrol stations this year 

• Reiterate our BUY call with 12.1% upside potential on a 12‐month view, backed by solid petroleum and basic chemical distribution, lucrative JIIPE outlook, partnership with BP, robust balance sheet, and integrated logistics networks 

Above expectations AKRA’s net profit rose 40.2% YoY to Rp428bn in 1Q22, accounting for 32.2%/32.2% of our/consensus FY forecasts. Revenues escalated 98.3% YoY to Rp10.13tn in 1Q22, driven by trading and distribution from petroleum and basic chemicals that surged 119.6% and 111.8%, respectively. This was due to higher ASP and volumes following strong demands from mining, smelter, and palm oil. Furthermore, the company booked industrial land sales of 2.5 ha or Rp47bn in value, lease income of Rp42bn, and revenue from utilities of Rp8bn in 1Q22. However, gross margin contracted from 12.4% in 1Q21 to 7.3% in 1Q22. Moreover, operating expenses grew 6.1% YoY to Rp202bn in 1Q22, particularly sourced from selling expenses; salaries, wages and employee benefits; travelling and transportation that partly compensated by lower insurance. In addition, AKRA recorded a forex loss of Rp93mn in 1Q22 compared to gain of Rp9.7bn in 1Q21. Finance income also shrunk 30.4% YoY to Rp4bn in 1Q22 amid lower interest rates, while finance costs decreased 9.3% YoY to Rp15bn in line with reduced debts. Meanwhile, balance sheet was robust with net gearing at 9.9% in 1Q22 from 15.4% in 1Q21. Momentum from soaring commodity prices We maintain our petroleum distribution growth assumption of 8% YoY in 2022, supported by higher 1) coal production; 2) commodity prices including coal and CPO; 3) mineral and precious metal productions such as copper, nickel, aluminium, and gold in the midst of manufacturing recovery; as well as 4) growth of supporting industries, namely shipping, warehousing, and other logistics. Furthermore, we believe that retail petroleum sales will increase on the back of eased mobility restrictions, while ASP to rise in line with surging oil prices. For basic chemical distribution, we expect that volume will grow 10% YoY in 2022, driven by 1) supportive government policies to improve downstream mining industry; 2) economic recovery; and 3) additions of smelter capacity. We also anticipate that ASP will escalate 5% YoY this year. To maintain margins in trading and distribution segment, AKRA will diversify its sources to secure supply. Industrial estate development and BP partnership as its next big things We expect JIIPE land sales to reach 40 ha this year, supported by 1) Special Economic Zone (SEZ) status; 2) ecosystem formed by the presence of Freeport smelter; 3) Omnibus Law implementation; 4) integrated connectivity with deep seaport, toll roads, and railways; as well as 5) in‐house utilities. Furthermore, AKRA will develop 515 MW gas‐fired power plants. The company also plans to expand solar panel capacity to 100 MW in the next few years, while aiming a renewable energy contribution to revenue of 30%. Moreover, AKRA will develop gas distribution business and its supply chain including LNG terminals and overland transportation. In addition, we view the presence of Freeport smelter will create an ecosystem for metal‐derived products and sulfur‐based industries. We believe that higher land sales and recurring income will become the next growth trajectory. JIIPE is projected to contribute 30% of gross profit by 2024. With BP partnership, AKRA remains optimistic with retail petroleum business outlook amid underpenetrated market and rising awareness of the use of higher grade fuels. We estimate that fuel volume and non‐fuel revenues will grow, driven by eased mobility restrictions, the opening of 25 new petrol stations this year, a 40% price hike for Pertamina’s RON 92 product which closes price gap with BP‐AKRA fuels. Reiterate BUY on the back of solid trading and distribution as well as JIIPE We maintain our BUY call with a higher DCF‐based price target of Rp1,200/share. The stock is currently traded at a 2022 PER of 15.2x and PBV of 2.1x. We remain sanguine on AKRA’s outlook, driven by 1) growing petroleum volume amid surging commodity prices, smelting industry, along with higher demands of basic chemicals as economy recovers; 2) lucrative JIIPE outlook from industrial land sales coupled with improving lease and recurring income following SEZ status, Omnibus Law implementation, and the development of copper smelter and precious metal refinery; 3) strategic partnership with BP to capitalize retail fuel segment and renewable energy; 4) robust balance sheet with low gearing and USD exposure; as well as 5) vast and integrated logistics infrastructures.