Equity Research

Company Update

Thursday,26 August 2021

BUY AKR Corporindo(AKRA IJ)

Maintain Continued strong start with SEZ title for JIIPE
Last price (IDR) 3,750 Post the release of the 1H21 result, we foresee the continuation of strong
Target Price (IDR) 4,500 performance in both logistics and trading and the industrial estate
Upside/Downside +20.0% businesses as several related industries have shown improvements
Previous Target Price (IDR) 3,800 compared to the previous year. Notably, the Special Economic Zone
title granted by the President of Indonesia will have a positive impact on
Stock Statistics JIIPE’s performance as it provides several tax and permit benefits to its
Sector Trade clients. With rising coal prices, easing social restrictions in manufacturing
Bloomberg Ticker AKRA IJ and SEZ title, we believe AKRA should continue its strong growth in 2H21.
No of Shrs (mn) 4,015 We reiterate our BUY call on the stock with a higher TP of IDR 4,450 based
Mkt. Cap (IDRbn/USDmn) 15,056/1,046 on SOTP valuation.
Avg. daily T/O (IDRbn/USDmn) 34.3/2.4
Continuation of a strong start in 2Q21. AKRA showed better performance due
Major shareholders (%) to better market conditions than last year, although operational hiccups still
Arthakencana Rayatama 59.6 occurred due to social distancing. The fuel business grew by 8.2%qoq while
Others 2.8 chemicals improved by 6.2%qoq. Furthermore, AKRA saw a significant
Estimated free float 37.6
improvement in JIIPE's development starting with solid land sales to the
Central Bank of Indonesia (47% of the total land sales target).
EPS Consensus (IDR)
2021F 2022F 2023F SEZ title for JIIPE and Freeport confirmation – notable game changers for
Danareksa 254.0 301.2 359.3 AKRA. In Jun21, the government finally granted JIIPE Special Economic Zone
Consensus 266.7 293.0 310.3 title which provides more benefits to JIIPE clients with fiscal and non-fiscal
Danareksa/Cons (4.8) 2.8 15.8 incentives. The fiscal incentives will include: 1) 10-20 years of corporate tax
holiday depending on the investment amount, 2) tax allowances and 3)
AKRA relative to JCI Index
exemptions from VAT, luxury tax and import income tax for several goods.
AKRA has been promoting aggressively post SEZ, including signing a MOU with
TAITRA (The Taiwan External Trade Development Council) to promote JIIPE
that involves high ranking government officials. Furthermore, Freeport
signed an EPC with Chiyoda with a total smelter project worth USD 2.8bn
opening up the opportunity for a copper ecosystem in JIIPE.

Better outlook in 2H21 - Our target price is raised to IDR 4,500. As several
hard commodity prices have shown an improvement since the beginning of
the year improving expectations of coal production and the easing of
restrictions for manufacturing companies, we estimate fuel and chemical sales
volume will still grow 10.4%yoy and 14.3%yoy, respectively, in FY21.
Source : Bloomberg
Furthermore, JIIPE has obtained SEZ title with several fiscal benefits and more
investors to come. We changed our valuation method to SOTP and rolled it
over to 22F arriving at a target price of IDR 4,500.
Key Financials
Year to 31 Dec 2019A 2020A 2021F 2022F 2023F
Revenue (IDRbn) 21,703 17,716 22,373 26,603 31,929
EBITDA (IDRbn) 1,422 1,588 1,784 2,042 2,354
EBITDA Growth (%) 15.8 11.7 12.4 14.4 15.3
Net profit (IDRbn)
Wt 717 925 1,020 1,209 1,442
x Ignatius Teguh Prayoga EPS (IDR) 178.6 230.4 254.0 301.2 359.3
(62-21) 5091 4100 ext. 3511 EPS growth (%) (56.4) 29.0 10.3 18.6 19.3
BVPS (IDR) 2,076.3 2,180.0 2,117.8 2,265 2,441.5
ignatius.prayoga@danareksa.co.id
DPS (IDR) 109.8 117.5 109.2 153.6 183.2
PER (x) 21.0 16.3 14.8 12.4 10.4
PBV (x) 1.8 1.7 1.8 1.7 1.5
Dividend yield (%) 2.9 3.1 2.9 4.1 4.9
www.danareksa.com EV/EBITDA (x) See important
12.5 disclosure
11.0at the back9.5of this report
7.9 16.4
Source : AKRA, Danareksa Estimates
 Special Economic Zone title for JIIPE – Further improvements
for the Industrial estate business
In Jun21, JIIPE was granted Special Economic Zone title by the President of
Indonesia which gives several fiscal benefits to JIIPE’s clients. The SEZ granted is
designated for technology and manufacturing, which encourages JIIPE to
specialize in both sectors in accordance with government plan to improve
Indonesia 4.0 and attract more investment. This is aligned with JIIPE’s strategy
to form the area becoming one ecosystem. Combined with the Freeport signing
EPC with Chiyoda to build a copper and gold smelter, JIIPE expects more
investors to be attracted to purchase the land.

Exhibit 1. Fiscal benefit

Source: Company, Danareksa Sekuritas estimates

Exhibit 2. Non-fiscal benefit

Source: Company, Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 2

 Creating an industrial ecosystem

Freeport’s new smelter will have processing capacity of 1.7mn tons of copper
concentrate per year. It is expected to be operational in 2024 as the
government requires raw materials to be processed before they are exported.
The smelter will support the ecosystem as copper, one of the main electronics
components, will be supplied to surrounding manufacturers. JIIPE’s clients will
not only obtain fiscal and non-fiscal benefits but also have the direct availability
of copper supply and its derivative products (including 600,000 tons of copper
cathode). JIIPE expects to bring total potential investment of ~IDR 195tn when
all land has been occupied, mostly from metal clusters.

Exhibit 3. Ecosystem and downstream from copper smelter

Source: Company, Danareksa Sekuritas estimates

Exhibit 4. Expected total investment by JIIPE’s clients

Source: Company, Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 3

 How will JIIPE monetize this opportunity?
As JIIPE has obtained SEZ title and the Freeport smelter is expected to be
operational, land sales should be boosted. The land ASP is around USD 150/sqm
with land acquisition cost of around ~USD 65/sqm. This will provide decent
margins. JIIPE expects to have 2021-2025 cumulative land sales of 200HA. This
year, the company is expecting to sell 30 HA of land which will translate into
gross profits of ~IDR 400bn/year.

However, JIIPE does not only target land to be acquired by clients but also
recurring income obtained from auxiliary businesses such as water treatment, a
power plant, port and other supplies. Once phase two is progressing, JIIPE
expects to reap around IDR 200-550bn in 2023 as the Freeport smelter will be
operational.

Furthermore, for Freeport smelter’s land rent of 103HA and lay-down area of
40-50HA, JIIPE is estimated to obtain IDR 150.2bn per annum at a minimum
(assuming LD area of 40HA) from 2021 to 2023 straight to operating income as
no additional costs will be incurred. Combined with JIIPE’s land sales, the total
gross profit from this business for AKRA is around IDR 550.2bn or 22% of AKRA’s
total gross profits.

Exhibit 5. Company land sales target vs. ours Exhibit 6. JIIPE gross profit expectation vs ours
60 1,400

50 1,200
1,000
40
800
IDR bn
HA

30
600
20
400
10 200
0 -
2021F 2022F 2023F 2024F 2025F 2021F 2022F 2023F 2024F 2025F

JIIPE Ours JIIPE Ours

Source: BRI Danareksa Sekuritas estimates Source: BRI Danareksa Sekuritas estimates

Exhibit 7. JIIPE gross profit contribution to AKRA 21F Exhibit 8. JIIPE gross profit contribution to AKRA 24F

JIIPE, 23.7%
JIIPE, 29%

AKRA non-
AKRA non- IE, 71%
IE, 76.3%

Source: BRI Danareksa Sekuritas estimates Source: BRI Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 4

 Development of JIIPE: Auxiliary services are on the way

JIIPE is now in phase two of development involving land treatment and the
building of a gas turbine power plant and water treatment plant. The power
plant is expected to be operational in 2022 with additional capacity of 300MW
and 250MW in 2025. So far, JIIPE has obtained a permit to sell directly to its
clients. JIIPE will use income from industrial estate operations to be reinvested
for utilities development so there will be a minimum impact on JIIPE’s cash flow
and no additional funding required.
Exhibit 9. Expected total investment by JIIPE’s clients

Source: Company, Danareksa Sekuritas estimates

Valuation: New Target Price

We changed our valuation method to SOTP to better capture the value of JIIPE,
combining the DCF valuation for AKRA’s non-industrial estate business with
WACC of 10% and JIIPE NAV with a discount to NAV of 65% using the industrial
average. Rolled over to 22F, we arrive at a new TP of IDR 4,500 implying PE 22F
of 17x. AKRA is currently trading at 11.2x PE at -1SD.

Exhibit 10. AKRA SOTP

SOTP Method Equity value (IDR bn) Stake
AKRA Existing business - Trading and distribution DCF 15,461.22 100% 15,461.22
JIIPE - Real estate RNAV 4,297.92 60% 2,578.75
SOTP 19,759.14 18,039.97

Share outstanding 4,015

Target price 4,500

Source: BRI Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 5

 Exhibit 11. PE Standard Deviation Chart Exhibit 12. EV/EBITDA Standard Deviation Chart
40.0 35.0
+3 SD
35.0 30.0
30.6 +2 SD
30.0 25.0
25.0 24.4 +1 SD
20.0
20.0 Avg. Avg.
15.0
15.0 10.0 -1 SD
10.0 5.0 -2 SD
5.0 -
- Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21
Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20
Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21
Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 6

 Exhibit 13. Income Statement
Year to 31 Dec (IDRbn) 2019A 2020A 2021F 2022F 2023F
Revenue 21,703 17,716 22,373 26,603 31,929
COGS (19,811) (15,668) (20,054) (23,959) (28,800)
Gross profit 1,892 2,048 2,319 2,644 3,129
EBITDA 1,422 1,588 1,784 2,042 2,354
Oper. profit 1,095 1,258 1,441 1,685 1,984
Interest income 38 50 27 40 57
Interest expense (110) (74) (77) (77) (77)
Forex Gain/(Loss) 0 0 0 0 0
Income From Assoc. Co’s 9 0 0 0 0
Other Income (Expenses) (133) (7) (7) (7) (7)
Pre-tax profit 899 1,227 1,384 1,641 1,957
Income tax (200) (265) (323) (383) (457)
Minority interest 14 (37) (41) (48) (58)
Net profit 717 925 1,020 1,209 1,442
Core Net Profit 714 925 1,020 1,209 1,442

Exhibit 14. Balance Sheet

Year to 31 Dec (IDRbn) 2019A 2020A 2021F 2022F 2023F
Cash & cash equivalent 1,861 1,549 2,283 3,267 4,453
Receivables 4,379 2,414 3,984 4,737 5,685
Inventory 1,621 1,037 1,367 1,626 1,951
Other Curr. Asset 2,917 3,042 3,115 3,163 3,223
Fixed assets - Net 5,325 5,126 5,295 5,288 5,268
Other non-curr.asset 5,306 5,515 5,515 5,515 5,515
Total asset 21,409 18,684 21,559 23,596 26,096

ST Debt 2,141 1,248 1,432 1,640 1,897

Payables 5,919 3,119 6,135 7,327 8,805
Other Curr. Liabilities 653 735 671 753 857
Long Term Debt 2,469 2,657 2,657 2,657 2,657
Other LT. Liabilities 160 368 399 409 421
Total Liabilities 11,342 8,127 11,293 12,786 14,637
Shareholder'sFunds 8,336 8,752 8,503 9,096 9,802
Minority interests 1,731 1,804 1,763 1,715 1,657
Total Equity & Liabilities 21,409 18,684 21,559 23,596 26,096

www.danareksa.com See important disclosure at the back of this report 7

 Exhibit 15. Cash Flow
Year to 31 Dec (IDRbn) 2019A 2020A 2021F 2022F 2023F
Net income 717 925 1,020 1,209 1,442
Depreciation and Amort. 0 0 0 0 0
Change in Working Capital 0 0 0 0 0
OtherOper. Cash Flow 72 24 50 37 20
Operating Cash Flow 789 949 1,070 1,246 1,462

Capex (731) (131) (513) (350) (350)

Others Inv. Cash Flow (1,412) (694) 27 40 57
Investing Cash Flow (2,142) (825) (486) (310) (293)

Net change in debt 392 (394) 214 218 269

New Capital (133) 36 (872) (48) (58)
Dividend payment (441) (472) (439) (617) (736)
Other Fin. Cash Flow (110) (74) (77) (77) (77)
Financing Cash Flow (291) (903) (1,173) (524) (601)

Net Change in Cash (1,644) (779) (589) 412 568

Cash - begin of the year 2,171 1,861 1,549 2,283 3,267
Cash - end of the year 1,861 1,549 2,283 3,267 4,453

Exhibit 16. Key Ratios

Year to 31 Dec 2019A 2020A 2021F 2022F 2023F
Growth (%)
Sales (7.8) (18.4) 26.3 18.9 20.0
EBITDA 15.8 11.7 12.4 14.4 15.3
Operating profit 17.0 14.8 14.5 17.0 17.7
Net profit (56.4) 29.0 10.3.9) 18.6 19.3
Profitability (%)
Gross margin 8.7 11.6 10.4 9.9 9.8
EBITDA margin 6.6 9.0 8.0 7.7 7.4
Operating margin 5.0 7.1 6.4 6.3 6.2
Net margin 3.3 5.2 4.6 4.5 4.5
ROAA 3.5 4.6 5.1 5.4 5.8
ROAE 8.6 10.8 11.8 13.7 15.3
Leverage
Net Gearing (x) 0.3 0.2 0.2 0.1 0.0
Interest Coverage (x) 10.0 16.9 18.8 22.0 25.9

Source : AKRA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 8

www.danareksa.com See important disclosure at the back of this report 9