Sluggish quarter due to lower ASP. AKRA posted a net profit of IDR 424 billion (-20% yoy, -30%% qoq) in 2Q23, on the back of lower-than-expected revenue (IDR 8.9 trillion; -26% yoy, -19% qoq) and EBITDA (IDR 645 billion; -16% yoy, -31% qoq). The drop in revenue can be attributed to the decline in ASP from its trading and distribution business, from which AKRA reaped IDR 6.9 trillion of revenue (-26% yoy, -15% qoq). However, even with the considerable drop in T&D revenue, AKRA still managed to report GPM and EBITDA margin expansion of +97 bps yoy (to 8.31%) and +0.9bps (to +7.3%), respectively, supported by the massive growth in revenue from its industrial estate business (+49% yoy to IDR 15 billion). Cumulatively, AKRA posted a net profit of IDR 1.03 trillion, resembling a modest  EPS growth of +8% yoy, lower than our estimate and consensus’ (SSI: 37.5%, cons: 39.6%).

What’s in store for 2H23? AKRA’s petroleum business is steadily progressing towards its sales volume target of 2.9 – 3 million kl, which can be attributed to the increase in the number of smelters in Indonesia and the anticipated rise in activity in the mining, plantation, and other sectors during the dry season. Also, we are optimistic about the prospect of its chemical trading business, given the fact that despite corrections in chemical ASP, the figure is still higher than historical levels. By the end of 1H23, AKRA had successfully achieved 46% of its FY23 petroleum sales target and 50% of its FY23 chemical sales target. We expect the company’s T&D business to book positive numbers in 2H23 as we enter a longer-than-usual dry season (due to El Nino), which may lead to higher demand for refined petroleum and caustic soda. AKRA also has ambitious plans for its retail business, with plans of opening 50 BP AKR outlets for FY23, followed by 100 outlets in the subsequent year, and eventually reaching 350 outlets by 2030. The business is expected to break even on an EBITDA level this year while contributing 10% of AKRA’s total petroleum sales volume (290k – 300 k kl), with a higher margin nature due to its B2B model.

Slightly adjusting our forecast. We maintain our confidence in the company on booking a better performance in 2H23; however, we need to revise our projections due to the possible risk of a longer-than-expected downtrend in petroleum ASP, which might affect overall margins. We then reduce our FY23F EBITDA projection for AKRA by -2.7% to IDR 3.7 trillion and its net profit projection by -3.1% to IDR 2.6 trillion. Meanwhile, we decided to maintain our forecast for 2024 as we are confident that AKRA will manage to increase land sales contribution to its gross profit, enabling the company to book better profitability.

Maintain BUY, TP IDR 1,900. As we rollover our valuation to FY24F, we maintain our BUY rating on AKRA with a higher TP of IDR 1,900, implying an FY24F P/E of 11.9x (-0.5 5-year SD). Risks: Lower-than-expected T&D ASP and land sales.