13 December 2023

AKR Corporindo AKRA.JK AKRA IJ

EQUITY: POWER & UTILITIES

Solid moat(s) to drive growth Rating

Remains Buy
Target price
Maintain Buy with an unchanged TP of IDR2,100 Remains IDR 2,100
Closing price
AKRA has underperformed (3M -3%) the JCI (3M +2.4%) due to concerns about an oil price 12 December 2023 IDR 1,400
decline (3M -17%), in our view. Yet, we believe volume plays a more crucial role, as AKRA’s
clients have shown an improvement in activities (higher production). The company’s competitive Implied upside +50.0%
moats, in our view, are: 1) its robust supply chain (refer to our company visit note here ), and 2)
Market Cap (USD mn) 1,799.7
the quality of its industrial estate (refer to our industrial estate comparison note here ), which
ADT (USD mn) 2.5
should still sustainably drive earnings growth. Additionally, management (and controlling
shareholder) has been buying AKRA shares in the past six months, according to the IDX filing.
This, in our view, underscores management’s confidence. We maintain our Buy rating on AKRA.
Relative performance chart
Robust infrastructure should sustainably support growth
To further improve its supply chain, AKRA has bought two new ships (increasing its fleet
size to 15 ships from 13 in FY22), which we believe are used to cater to the demand in
Eastern Indonesia. This should sustainably support AKRA’s long-term volume growth in
the petroleum and basic chemicals space in Indonesia.
Expect industrial estate (JIIPE) to remain in the spotlight
We increase our 2023F and 2024F land sales estimates for JIIPE (unlisted; 60% holding)
to 91ha and 120ha (vs both previously 75ha, and company guides 2024F land sales
target at 130ha), respectively. The completion and commencement of Freeport Indonesia
as the anchor tenant and the design of the industrial estate to be an integrated industrial
estate should be beneficial for AKRA – not just from an incremental land sales point of
view, but also for potential recurring income (see our previous note here ). Source: LSEG, Verdhana

Raise earnings estimates, but maintain our TP and Buy rating

We increase our earnings estimates by 7%/7% for 2023F/2024F and introduce 2025F Research Analysts
numbers. Our TP of IDR2,100 (implying 50% upside) is derived using the SOTP Indonesia Research Team
methodology (Fig. 8 ). Our TP remains unchanged as AKRA’s earnings growth is
Jupriadi Tan
primarily driven by land sales. At our TP, the stock would trade at a 2024F P/E of 14.6x Jupriadi.tan@verdhana.id
(currently trading at a 2024F P/E of 9.7x). Downside risks to our view include: 1) lower- +62 (82170104346)
than-expected volumes for its trading and distribution business; 2) unfavorable market
dynamics, given abundant oil supply and lower commodity prices that could translate into Gerald Hugo
Gerald.hugo@verdhana.id
lower margins for AKRA’s customers; 3) lower-than-expected ASPs for its chemical +62 (81911118721)
business; and 4) a delayed customer acquisition strategy for JIIPE.

Year-end 31 Dec FY22 FY23F FY24F FY25F

Currency (IDR) Actual Old New Old New Old New
Revenue (bn) 47,540 40,327 41,665 41,729 43,341 0 48,087
Reported net profit (bn) 2,465 2,484 2,655 2,687 2,887 0 3,007
Normalised net profit (bn) 2,465 2,484 2,655 2,687 2,887 0 3,007
FD normalised EPS 121.20 123.75 132.26 133.88 143.83 149.82
FD norm. EPS growth (%) 110.7 12.2 9.1 8.2 8.7 4.2
FD normalised P/E (x) 11.6 – 10.6 – 9.7 – 9.3
EV/EBITDA (x) 8.3 – 6.6 – 5.7 – 5.1
Price/book (x) 2.5 – 2.2 – 2.0 – 1.8
Dividend yield (%) 5.4 – 4.8 – 5.2 – 5.4
ROE (%) 24.3 21.9 22.8 21.0 22.2 20.8
Net debt/equity (%) net cash net cash net cash net cash net cash net cash
Source: Company data, Verdhana estimates
Verdhana | AKR Corporindo 13 December 2023

Key data on AKR Corporindo

Cashflow statement (IDRbn)
Year-end 31 Dec FY21 FY22 FY23F FY24F FY25F
Performance EBITDA 1,758 3,479 3,870 4,331 4,643
(%) 1M 3M 12M Change in working capital 2,018 -158 2,142 -464 -434
Absolute (IDR) -2.4 -2.8 1.4 M cap (USDmn) 1,799.7 Other operating cashflow -832 -692 -787 -982 -1,136
Absolute (USD) -2.0 -4.5 1.5 Free float (%) 38.7 Cashflow from operations 2,945 2,629 5,225 2,885 3,072
Rel to Jakarta -7.1 -5.5 -4.4 3-mth ADT (USDmn) 2.5 Capital expenditure -154 -411 -609 -561 -588
Stock Exchange
Composite Index Free cashflow 2,790 2,218 4,616 2,324 2,484
Reduction in investments -7 -16 0 0 0
Net acquisitions
Income statement (IDRbn) Dec in other LT assets 174 0 0 0
Year-end 31 Dec FY21 FY22 FY23F FY24F FY25F Inc in other LT liabilities -91 0 0 0
Revenue 25,707 47,540 41,665 43,341 48,087 Adjustments -47 150
Cost of goods sold -23,414 -43,288 -37,160 -38,431 -42,789 CF after investing acts 2,736 2,435 4,616 2,324 2,484
Gross profit 2,293 4,252 4,505 4,909 5,298 Cash dividends -533 -829 -1,327 -1,444 -1,504
SG&A -837 -1,166 -1,062 -1,040 -1,154 Equity issue
Employee share Debt issue -1,115 -9 0 0 0
expense Convertible debt issue
Operating profit 1,456 3,087 3,442 3,869 4,144 -37 140 344 311 203
Others
EBITDA 1,758 3,479 3,870 4,331 4,643 -1,685 -698 -984 -1,133 -1,301
CF from financial acts
Depreciation -302 -393 -428 -462 -499 1,051 1,737 3,632 1,192 1,183
Net cashflow
Amortisation 1,549 2,600 4,338 7,970 9,161
Beginning cash
EBIT 1,456 3,087 3,442 3,869 4,144 2,600 4,338 7,970 9,162 10,344
Ending cash
Net interest expense -20 -8 22 34 46 373 -1,374 -5,006 -6,197 -7,379
Ending net debt
Associates & JCEs
Other income 2 7 106 106 106 Balance sheet (IDRbn)
Earnings before tax 1,438 3,086 3,571 4,010 4,296 As at 31 Dec FY21 FY22 FY23F FY24F FY25F
Income tax -260 -545 -630 -802 -945 Cash & equivalents 2,600 4,338 7,970 9,161 10,344
Net profit after tax 1,178 2,541 2,941 3,208 3,351 Marketable securities
Minority interests -23 -76 -286 -321 -344 Accounts receivable 4,512 6,020 8,333 9,102 10,579
Other items Inventories 4,508 5,221 4,482 4,635 5,160
Preferred dividends Other current assets 402 262 262 262 262
Normalised NPAT 1,155 2,465 2,655 2,887 3,007 Total current assets 12,023 15,841 21,047 23,160 26,346
Extraordinary items LT investments 402 417 417 417 417
Reported NPAT 1,155 2,465 2,655 2,887 3,007 Fixed assets 4,978 4,997 5,178 5,277 5,367
Dividends -495 -1,480 -1,327 -1,444 -1,504 Goodwill
Transfer to reserves 660 985 1,327 1,444 1,504 Other intangible assets
Valuations and ratios Other LT assets 6,106 5,932 5,932 5,932 5,931
Reported P/E (x) 24.3 11.4 10.4 9.6 9.2 Total assets 23,509 27,188 32,574 34,786 38,061
Normalised P/E (x) 24.3 11.4 10.4 9.6 9.2 Short-term debt 505 556 556 556 556
FD normalised P/E (x) 24.3 11.6 10.6 9.7 9.3 Accounts payable 8,044 9,662 13,378 13,835 15,404
Dividend yield (%) 1.8 5.4 4.8 5.2 5.4 Other current liabilities 758 1,062 1,062 1,062 1,062
Price/cashflow (x) 9.5 10.8 5.4 9.7 9.1 Total current liabilities 9,307 11,280 14,996 15,453 17,022
Price/book (x) 3.0 2.5 2.2 2.0 1.8 Long-term debt 2,468 2,408 2,408 2,408 2,408
EV/EBITDA (x) 17.3 8.3 6.6 5.7 5.1 Convertible debt
EV/EBIT (x) 20.9 9.4 7.4 6.4 5.7 Other LT liabilities 435 344 344 344 344
Gross margin (%) 8.9 8.9 10.8 11.3 11.0 Total liabilities 12,210 14,033 17,748 18,206 19,774
EBITDA margin (%) 6.8 7.3 9.3 10.0 9.7 Minority interest 1,954 2,186 2,530 2,841 3,043
EBIT margin (%) 5.7 6.5 8.3 8.9 8.6 Preferred stock
Net margin (%) 4.5 5.2 6.4 6.7 6.3 Common stock 1,689 1,689 1,689 1,689 1,689
Effective tax rate (%) 18.1 17.7 17.7 20.0 22.0 Retained earnings 7,518 9,094 10,421 11,865 13,369
Dividend payout (%) 42.9 60.0 50.0 50.0 50.0 Proposed dividends
ROE (%) 12.8 24.3 22.8 22.2 20.8 Other equity and reserves 138 186 186 186 186
ROA (pretax %) 7.7 14.1 14.5 15.4 15.5 Total shareholders' equity 9,345 10,969 12,296 13,740 15,244
Growth (%) Total equity & liabilities 23,509 27,188 32,574 34,786 38,061
Revenue 84.9 -12.4 4.0 11.0 Liquidity (x)
EBITDA 97.9 11.2 11.9 7.2 Current ratio 1.29 1.40 1.40 1.50 1.55
Normalised EPS 113.5 9.2 8.7 4.2 Interest cover 72.8 379.3 – – –
Normalised FDEPS 110.7 9.1 8.7 4.2 Leverage
Net debt/EBITDA (x) 0.21 net cash net cash net cash net cash
Source: Company data, Verdhana estimates
Net debt/equity (%) 4.0 net cash net cash net cash net cash
Per share
Reported EPS (IDR) 57.72 123.23 134.52 146.28 152.37
Norm EPS (IDR) 57.72 123.23 134.52 146.28 152.37
FD norm EPS (IDR) 57.53 121.20 132.26 143.83 149.82
BVPS (IDR) 467.11 555.75 623.01 696.15 772.33
DPS (IDR) 24.74 74.99 67.26 73.14 76.19
Activity (days)
Days receivable 40.4 62.9 73.6 74.7
Days inventory 41.0 47.6 43.4 41.8
Days payable 74.6 113.2 129.6 124.7
Cash cycle 0.0 6.8 -2.6 -12.6 -8.2
Source: Company data, Verdhana estimates

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Verdhana | AKR Corporindo 13 December 2023

Company profile
AKRA was set up in 1960. In 1977 the firm was formally incorporated under the name “Aneka Kimia Raya”. AKRA engages in four business
segments: 1) Trading and distribution of petroleum and basic chemicals. 2) Industrial estate -- in Java Integrated Industrial and Ports Estate (JIIPE)
located in Gresik, West Java, Indonesia. 3) Logistic services. 4) Manufacturing segment.

Valuation Methodology
AKRA's TP of IDR2,100 is derived from SOTP methodology. We value its trading and distribution business using a target P/E of 12x. Its
manufacturing & logistics and utilities business is valued using DCF with a WACC of 10% and terminal growth of 2.5%. The industrial estate
business is valued using discount to NAV of 30%. The benchmark for the stock is JCI.

Risks that may impede the achievement of the target price

Downside risks to our call include: 1) lower-than-expected volume for its trading & distribution business; 2) unfavorable dynamics, with abundant oil
supply and lower commodity prices; 3) lower-than-expected ASP for its chemical business; and 4) delayed customer acquisition strategy for JIIPE.

ESG
The implementation of ESG aspects moved towards the initiation strategy for the development of a cleaner energy business (JV Gas Distribution).
AKRA’s shares in 2021 were included in various well-known ESG Indexes: 1) ESG Leader Index, 2) Sri Kehati Index, 3) ESG Starlist Company, 4)
ESG Quality 45 IDX KEHATI. AKRA's best ESG practices can be seen in its health & safety (12.565.738 hours without incident in 2021), opportunity
equality (43% director level, 21% management level), and 0 environment complaint in 2021.

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Verdhana | AKR Corporindo 13 December 2023

Fig. 1: AKRA – 4Q23F results estimates

AKRA IJ (IDR bn) 3Q22 4Q22 3Q23 4Q23F q-q % y-y % 9M22 9M23 y-y% % Ours % Cons
Revenue 12,472 12,958 10,123 11,687 14% -19% 34,582 29,977 -13% 74% 69%
Trading & distribution 11,987 11,595 9,441 9,753 12% -21% 33,103 27,918 -16%
JIIPE 43 927 280 1,518 460% 543% 176 854 387%
Others 430 428 392 416 7% -9% 1,275 1,156 -9.3%
COGS 11,370 11,426 9,061 10,055 11% -20% 31,861 27,106 -15%
Trading & distribution 10,984 10,529 8,578 8,884 10% -22% 30,725 25,686 -16%
JIIPE 16 543 172 796 859% 971% 64 462 624%
Others 370 384 343 375 6% -7% 1,072 991 -7.6%
GP 1,102 1,532 1,062 1,633 44% -4% 2,721 2,872 6% 65% 58%
Trading & distribution 1,004 1,066 863 869 32% -14% 2,378 2,232 -6.1%
JIIPE 27 385 107 723 235% 291% 112 392 251%
Others 60 43 48 41 21% -19% 202 165 -18%
EBIT 733 1,151 806 1,280 48% 10% 1,935 2,163 12% 68% 62%
EBITDA 793 1,310 947 1,358 44% 19% 2,154 2,512 17% 70% 65%
Pretax 699 1,212 850 1,349 52% 22% 1,874 2,223 19% 69% 64%
NP 608 840 679 945 60% 12% 1,564 1,710 9% 69% 65%

Margins % 3Q22 4Q22 3Q23 4Q23F 9M22 9M23

GP 8.8% 12% 10.5% 14.0% 7.9% 9.6%
Trading & distribution 8.4% 9.2% 9.1% 8.9% 7.2% 8.0%
JIIPE 63% 41% 38% 48% 64% 46%
Others 14% 10% 12% 10% 15.9% 14.3%
EBIT 5.9% 8.9% 8.0% 10.9% 5.6% 7.2%
EBITDA 6.4% 10% 9.4% 11.6% 6.2% 8.4%
Pretax 5.6% 9.4% 8.4% 11.5% 5.4% 7.4%
NP 4.9% 6.5% 6.7% 8.1% 4.5% 5.7%

Source: Company data, Bloomberg consensus, Verdhana estimates

Fig. 2: AKRA's net profit has grown significantly in the past five years and is
still growing rapidly, which deserves to be appreciated

Source: Company data, Verdhana estimates

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Verdhana | AKR Corporindo 13 December 2023

Fig. 3: Indonesia's I&S export volumes grew by +21% y-y; Fig. 4: Higher coal production volumes would lead to higher
increasing down-streaming activities should positively diesel demand in Indonesia, which AKRA should be able to
impact AKRA's trading and distribution business meet

Source: BPS, Verdhana research Source: Company data, Verdhana estimates

Fig. 5: AKRA's long-term financials – strong ROE trend and robust balance sheet (net cash) and well-managed working capital
(negative cash conversion cycle)

Source: Bloomberg, Verdhana research

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Verdhana | AKR Corporindo 13 December 2023

Fig. 6: AKRA's ROE has reached record level but valuation still has not caught up

Source: Bloomberg, Verdhana research

Fig. 7: AKRA's ownership trend – increasing local position

Source: KSEI, Verdhana research

Fig. 8: AKRA – SOTP valuation methodology

AKRA's SOTP valuation Method EV Ownership Ownership adj-EV

Trading & distribution (T&D) Target P/E 12x 25,118 100% 25,118
Manufacturing & logistics DCF (WACC 10%, TG 2.5%) 4,906 100% 4,906
Industrial estate Disc to NAV - 30% 11,256 60% 6,753
Utilities DCF (WACC 10%, TG 2.5%) 2,202 60% 1,321
38,099
Net debt (cash) - ex T&D (IDR bn) (4,313)
Equity value (IDR bn) 42,412
#shares 20,073
TP (IDR/share) 2,100

Source: Verdhana estimates

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INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of
‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of
‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of
‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable
regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular
research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the
analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s
earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the
market in general.

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