AKRA - Strengthening business pillars

• AKRA’s 1H22 net profit rose 73.6% YoY to Rp955bn, representing 67.7% of our FY estimate 

• We expect petroleum and chemical distribution to grow 8% YoY and 10% YoY, respectively in 2022, supported by strong commodity prices and demands for energy, downstream mining industry, 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 

• Reiterate our BUY call with 15.7% 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 

Exceeding expectations AKRA’s net profit surged 73.6% YoY to Rp955bn in 1H22, accounting for 67.7%/65.4% of our/consensus FY estimates. Amid higher selling prices and volumes, revenues escalated 106.5% YoY to Rp22.11tn in 1H22, driven by trading and distribution from petroleum and basic chemicals that jumped 120.6% YoY and 114.7% YoY, respectively. This was due to increasing petroleum demands from mining, smelter, and palm oil sectors, whilst chemical ASP has more than doubled in line with global price hikes on the back of supply chain disruptions. Furthermore, the company booked industrial land sales of 3.5 ha or Rp47bn in value, lease income of Rp85b, and revenue from utilities of Rp18bn in 1H22. However, gross margin contracted from 10.2% in 1H21 to 7.3% in 1H22. Moreover, operating expenses grew 20.2% YoY to Rp415bn in 1H22, mainly sourced from salaries, wages and employee benefits, as well as selling expenses. In addition, AKRA recorded a forex loss of Rp19bn in 1H22 compared to gain of Rp12bn in 1H21. Meanwhile, balance sheet remained robust with net cash position in 1H22. Riding commodity boom wave We maintain our petroleum distribution growth assumption of 8% YoY in 2022, supported by strong commodity prices and demands for mineral and energy amid rising geopolitical tensions. Furthermore, we believe that retail petroleum sales will improve on the back of eased mobility restrictions, while ASP to increase in line with soaring oil prices. In terms of basic chemical distribution, we estimate that volume will grow 10% YoY in 2022, driven by government policies to accelerate downstream mining industry that will result in growing smelter capacity as well as economic recovery. We also anticipate higher demands from manufacturing companies, including textiles, rayon, alumina, soaps, and other chemical industries. Meanwhile, we view absolute gross margin to improve, thanks to significant price hikes due to shortfall in supplies. Industrial estate and BP partnership as the next growth drivers We maintain our JIIPE land sales assumption of 40 ha this year, bolstered by Special Economic Zone (SEZ) status, ecosystem formed by the presence of Freeport smelter, Omnibus Law implementation, integrated connectivity with deep seaport, toll roads, and railways, as well as in‐house utilities. AKRA expects to book c.37 ha land sales to a foreign investor in 2H22. The company estimates land sales to reach c.Rp1tn, lease income of c.Rp150bn from Freeport, and utilities income of c.Rp50bn in 2022. Construction of copper smelter is slated to be completed by 2023. AKRA is developing 515 MW gas‐ fired power plants and planning to expand renewable energy, including solar panel capacity that is targeted to reach 100 MW in the next few years as well as LNG terminals. With BP partnership, AKRA remains optimistic with retail petroleum business outlook due to underpenetrated market, improving daily sales per site and non‐fuel revenues, as well as rising awareness of the use of higher‐grade fuels. The JV expects to add 15 new petrol stations by year‐end, while expanding DODO partnership scheme going forward. We anticipate policy on RON 90 sales restrictions will prompt customers to shift to higher‐octane gasoline. 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 Rp1,250/share. The stock is currently traded at a 2022 PER of 13.2x and PBV of 2.1x. We remain sanguine on AKRA’s outlook, driven by 1) growing petroleum distribution amid soaring commodity prices, B35 policy, expansions of mining and smelting industries, along with higher prices and demands of basic chemicals in line with economic recovery; 2) lucrative JIIPE outlook from industrial land sales coupled with improving lease and recurring income following SEZ status, Omnibus Law implementation, as well as 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 net cash position and low USD exposure; as well as 5) vast and integrated logistics infrastructures.