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CPO production growth of +3.7% YoY in 3Q23. AALI’s FFB production volume experienced QoQ growth in 3Q23 (+3.3% QoQ), though it was flattish compared to 3Q22 (-0.1% YoY). However, CPO production rose +2.2% QoQ and +3.7% YoY, implying that AALI purchased more FFBs from third parties than in 3Q22. Regarding the cumulative figures, FFB production rose +4.8% YoY in 9M23 with an FFB yield of 12.4 tons/ha (+2.8% YoY), but CPO production fell -0.7% YoY to 977 thousand tons. It might be difficult for AALI to increase its FFB and CPO production, mainly because most of its plants are quite old (average age: 15.1 years); 37.3% of its plants are older than 20 years old, and only 37.9% of its plants are at their prime age. FFB yields fell further from 21.4 tons/ha in FY18 to ~16 tons/ha at the end of this year.
Net profit growth of +6.3% YoY in 3Q23. Even though its CPO production was relatively stable in 3Q23, AALI’s CPO sales volume went up by +24.8% YoY (+42.5% QoQ), which helped offset the drop in CPO ASP (-19.7% YoY and -2.5% QoQ) and boost its revenue (+13.3% YoY and +35.9% QoQ). Its operating profit went up as well (+19.9% YoY, with an OPM of 8.5%), and its net profit rose +6.3% YoY with an NPM of 6.9%. However, AALI's cumulative revenue fell -5.1% YoY in 9M23, in line with SSI and consensus estimates, mainly due to the decline in CPO ASP (-23.2% YoY). Its net profit plunged -34.2% YoY amidst the increase in operating expenses of +4.9% YoY, putting pressure on its NPM (5.1%, vs. 7.4% in 9M22). AALI’s 9M23 net profit fell short of expectations (48.5% of SSI's FY23F projection and 67.2% of consensus).
2024F outlook. We think it might be difficult for AALI to increase its nucleus FFB production at the moment, mainly due to its relatively old plants. Therefore, around 37% of the total FFB processed comes from external sources with relatively limited profit margins. To prevent further decline in profit margin, we believe that AALI will limit the proportion of external FFB to 45%; thus, we project AALI’s CPO production to be flat (+0.5% YoY). Meanwhile, we estimate CPO prices to reach IDR 12K/kg (+8% YoY), supported by the El-Nino phenomenon and global economic recovery. Regarding AALI’s future performance, we project the company to book revenue growth of +6.6% YoY and net profit growth of +9.4% YoY in FY24F.
HOLD, TP IDR 7,500/share. In light of the factors outlined above, we decided to reiterate our HOLD rating on AALI with a TP of IDR 7,500/share, implying an EV of USD 3,520/Ha. Main risks: Price fluctuations and regulatory changes.
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