Overview of AKR Corporindo

AKR Corporindo (AKRA IJ), a key player in the energy sector, specializes in petroleum and chemical distribution through its extensive logistics network. The company has strategically diversified into industrial estates through Java Integrated Industrial and Port Estate (JIIPE) and retail petroleum via a joint venture with BP. Despite its robust business portfolio, 2024 presented mixed results, prompting a reassessment of its financial outlook.

2024 Financial Performance and Net Profit Analysis

For 2024, AKR Corporindo reported a preliminary net profit of Rp2.2 trillion, falling short of its guidance due to underwhelming land sales. This figure indicates a significant quarterly improvement, with a net profit of Rp700 billion to Rp800 billion in Q4 2024 compared to Rp465 billion in Q3 2024. The quarterly growth was driven by a recovery in the trading and distribution business, attributed to higher sales volumes and improved margins due to changes in customer mix.

Trading and Distribution Business: A Resilient Segment

The trading and distribution segment experienced robust quarter-on-quarter growth in Q4 2024. This resurgence was linked to customers ramping up mining activities after securing permits in Q3 2024. The segment also benefited from improved margins due to a shift in its customer mix, particularly from rising demand in the mining sector.

For 2025, AKRA forecasts 5-7% growth in sales volume for this segment. Key drivers include contributions from the retail business, new supply from partners, and increased capacity from recently opened ports and terminals. AKRA also expects stable margins in 2025, supported by demand recovery in the mining sector.

Retail Petroleum Business: Turning the Corner

AKRA’s retail petroleum segment is on track to break even or turn profitable by the end of 2025, thanks to narrowing price differences between Pertamina and private players and strategic marketing initiatives. The government’s gradual reduction of fuel subsidies has created opportunities for private companies to expand their gas station network.

AKRA plans to operate 120-130 outlets by the end of 2025, up from 46 in 2023. By 2028, the company aims to have 300-350 outlets, potentially increasing retail volume contributions to 15% of the total business.

Industrial Estate Business: Challenges in Land Sales

In 2024, AKRA sold a total of 37 hectares (ha) of land, far below its target of 100ha. This shortfall was primarily due to bureaucratic delays. However, the company plans to roll over 60ha of unsold land into 2025, aiming for 80-110ha of land sales. Management projects landbank inquiries to reach 700-800ha over the next five years.

The industrial utility business also showed promise in 2024, with income surging to Rp175.8 billion in the first nine months, compared to Rp48 billion during the same period in 2023. This growth was driven by increased demand from JIIPE tenants. The company is also investing in a power plant with a capacity of 1.1-1.3GW to meet tenants’ electricity needs.

Financial Metrics and Projections

AKRA revised its 2024 and 2025 net profit estimates downward by 25% and 20%, respectively, due to lower-than-expected land sales. The revised net profit projections stand at Rp2.2 trillion for 2024 and Rp2.4 trillion for 2025, aligning with management’s guidance of Rp2.4 trillion to Rp2.6 trillion for 2025.

The company’s robust balance sheet, with Rp4.7 trillion in cash as of September 2024 and a debt-to-equity ratio of 33%, positions it well for future expansion, including the development of an LNG terminal at JIIPE.

Valuation and Recommendation

UOB Kay Hian maintains a HOLD rating for AKR Corporindo but lowers the target price from Rp1,700 to Rp1,350. This revised target price is based on a 13x price-to-earnings (PE) ratio for the trading and distribution segment and a 60% discount to the real net asset value (RNAV) for the industrial estate segment. The new target price implies an 11.2x 2025 PE, below the five-year forward PE mean.

While the presence of JIIPE introduces earnings volatility, AKRA’s trading and distribution business remains resilient, achieving a compound annual growth rate (CAGR) of 25% in gross profit from 2020 to 2023. The stock currently trades at a forward PE of 9.1x, close to -2 standard deviations from its five-year historical forward mean PE.

Key Risks

• Lower-than-expected sales volume in trading and distribution.
• Delays in JIIPE land sales or tenants’ plant operations.
• Lower-than-expected margins in key business segments.