AKR Corporindo (AKRA IJ)

Potential operational beat in 2H23

AKRA will potentially exceed its FY23 land sales target of 70-75 ha with expected land sales in 4Q23 of 77 ha, based on its latest marketing sales. We also see AKRA ramping up its petrol and chemical sales volume in 2H23, in-line with historical seasonality, to potentially reach 6-8% yoy volume growth (vs. our forecast of 5%). We raise our FY23 forecast and maintain our TP at Rp2,000, and reiterate Buy rating. 

Expect distribution volume to ramp up in 2H23. AKRA management sees volume for both its petrol and chemical segments to grow at 6-8% yoy in 2023 (higher than our 5% yoy growth forecast of 3mn KL of petrol and 1.6mn tons of chemicals). We estimate that AKRA’s petrol and chemical volume in 1H23 reached 46% and 47.9% of our FY23F target, which we deem in-line with historical achievement in 1H (vs. 5-year avg of 48%) amid higher rainfall intensity in 1Q23 and fewer working days in 2Q23 due to Idul Fitri festivities. As a result, we believe AKRA will ramp up its petrol and chemical sales volume in 2H23 which we expect to drive petrol and chemicals sales volume growth of 15.1% qoq/ +13.1% yoy and 5.1% qoq/ +19% yoy in 3Q23, respectively.

2023F land sales may likely exceed the initial target. AKRA’s initial target for its land sales in 2023 is around 70–75 ha, or 59 - 70.5% above FY22’s achievement. In 1Q23, AKRA had already booked land sales of 19.6 ha, c.28% of its FY23 target. However, in 3Q23, AKRA announced that its cumulative marketing sales (targeted to be booked as land sales in 4Q23) are 77 ha (sales to Hebang and another manufacture company), which brings the FY23F cumulative land sales to 97 ha (vs. our initial target of 80 ha). Consequently, we raise our 2023F land sales target by 21.3% to 97 ha.

Potential upside for chemical distribution revenue post completion of JV with Hebang. Besides signing a CSPA to buy around 67 HA of land in JIIPE, Hebang also signed a Term Sheet with AKRA to establish a joint venture to build a petrochemical plant which will mainly produce Sodium carbonate, Ammonium chloride and Glyphosate and other products. AKRA is taking a minority stake (10%) mainly to be a local partner and also one of the distributors for the various chemicals that will be produced by the JV. This shall benefit AKRA’s basic chemicals trading and distribution business in the future.

Maintain BUY rating on attractive growth outlook. We raise our 2023F earnings forecast by 9.7% to IDR2.97 but keep our 2024F earnings forecast unchanged. We maintain our TP to IDR2,000 (based on SOTP), which implies PE 2024 of 13.4x (in-line with its 5-year average).