Austindo Nusantara Jaya: Agriculture

The Company

 Austindo Nusantara Jaya (ANJT), established under the name Austindo Teguhjaya in 1993, engaged in financial services, health care, agrobusiness and energy prior to 2012. In that year, ANJT restructured its business to focus on palm oil and sago, as well as engage in power generation from geothermal and bio-gas. Growth in palm oil (93% of revenue), sago, tobacco (3%) and renewable energies (4%) will be supported using IPO proceeds amounting to $41m. Owned by the Tahija family, who are well known for shareholder-friendly histories with listed Bank Niaga and Pearl Energy, ANJT has solid corporate governance and no related-party transactions. Some 23 years of plantation experience and a conservative management approach have led to a total conservation area of 12,000 ha. Coupled with excellent community relations, this in our view translates to a low operating risk and allows for sustainable growth going forward. Currently, ANJT owns and operates four oil palm plantations located in North Sumatra, Belitung Island and West Kalimantan. ANJT also has three oil palm plantations that remain unplanted and are situated in South Sumatra and West Papua. Thus, ANJT’s seven oil palm plantations total 96,773 ha plantable land bank with planted area of 40,852 ha, of which 78.2% are matured oil palms aged more than four years, while the remaining 21.8% are immature and aged less than three years.

Development Strategy

With an unplanted land bank of 56,000 ha, ANJT plans to plant new palm oil estates amounting to 5400-7000 ha per annum through to 2015. ANJT has finished land clearing and infrastructure preparations in the newly acquired land bank in Kalimantan as well as nursery and seedling activities. Apart from expanding through its owned land bank, ANJ is also seeking acquisition opportunities in the sector. Apart from the palm oil segment, ANJT will experience strong production growth from sago and new energy segment expansions. ANJT’s initial sago development is targeted at 15,000 ha plantation within a period of five years. Following a lengthy negotiation process since 2007 with local communities, ANJT finally received full support from surrounding Papua tribes to develop a sago starch industry in a sago concession area. As a result, ANJT is now developing canals for sago log transportation, water supply chain networks, a sago mill with a monthly starch capacity of 3000 tonnes ( expandable to 5000), and other related infrastructures. Full-scale sago starch production will be in the region of 70,000 tonnes of native starch per annum, depending on market demand. ANJT is ready to move into downstream processing with strategic partners.

ANJT has one of the most efficient cost structures in the sector, at a cost of $397 per tonne, 8% lower than the sector average, resulting in a high EBITDA margin of 25% in 2013. This is partly due to the implementation of several new technologies, initiatives and mechanisations, allowing ANJT to operate more efficiently than its peers, as reflected by higher employee productivity of 8 ha per person (compared to the industry average of 5 ha per person). With ANJT increasing efficiencies, its future cost structure will remain manageable in our view.

Forecast

ANJT, with a planted area of 41,000 ha, plans to expand into the sago business and biogas-based power plant businesses in 2014. Following the commencement of its Papua-based sago business, ANJT will open palm oil plantations in Papua New Guinea. Production in 2014 should recover to 195,000 tonnes, up 9% year-on-year (y-o-y), while additional contributions from 6000 ha of harvested sago area and one operating power plant should help support the overall top line to reach $175m, up by 14% y-o-y. As we expect 2014 earnings to recover to $37m, up 64% y-o-y, on higher production and lower labour cost growth, valuation is currently attractive on 2014 PE of 11.6x, 38% discount to its Malaysian counterparts. ANJT is one of our favoured top small cap picks, with a target price of Rp1600 ($0.16), based on 2014 PE of 12.4x, translating to 32% discount to its Malaysian peers. Therefore, we expect its 15% market outperformance since its IPO to persist.