AKR Coporindo
- In which year did we first invest?
- We first invested in AKR in 2019.
Where is their head office?- The head office is in Jakarta, Indonesia.
What does the company do?
Founded as a small chemical trading business in Surabaya and established as Aneka Kimia Raya in 1977, AKR is now a leading distributor of chemicals, fuel and lubricants across Indonesia. It also offers logistics and transport services.
Why do we like the investment?
We view AKR as a good proxy for the growth of Indonesia, which is rich in natural resources and has a young and expanding workforce as well as a large domestic market. AKR’s fundamentals also impress us. Its core petroleum and chemicals-distribution businesses are growing steadily, benefitting from increased mining activity and volumes in the current commodity cycle. On top of that, its retail fuel business with BP is progressing on track. AKR is among the main players in an industry with high entry barriers, with its competitive edge enhanced by extensive infrastructure and logistics facilities across the country. With all this, AKR generates robust free cash flow and has a solid balance sheet, which help sustain a decent dividend yield of around 4%. Management is open to using its strong cash position to pay down debt, finance capex and increase its dividend payments in future.
Looking ahead, a key growth driver would be the unlocking of value via land sales at its Jakarta Integrated Industrial Port Estate (JIIPE), a joint venture with Pelindo. JIIPE sprawls across 1,800 hectares of land, including a 400-hectare port, in Gresik, East Java. It is one of the few integrated industrial estates in Indonesia with dedicated deep-sea port access and utilities support, such as power, water, gas piping waste treatment and telecommunication facilities. It also has direct toll road and railway connections. Furthermore, in mid-2021, JIIPE was designated a special economic zone for the technology and manufacturing sectors.
To date, most of the investments in JIIPE have been completed, and the industrial estate is now entering its monetisation phase with its portion of group profits on the rise. JIIPE has already booked 3.5 hectares of land sales in the first half of 2022, with another 37 hectares expected to be booked in the second half. Management expects JIIPE to deliver 60 hectares of land sales in 2023, given keen interest from potential buyers. Aside from land sales, the company has also started to book rental income for laydown areas assigned to smelter construction.
On the ESG front, AKR’s increasing focus on sustainability is reflected in its green initiatives. At JIIPE, for example, the use of sensors and timers help reduce energy consumption, while most of the street lighting is powered by solar panels. As for carbon emissions, management is working on a 10-year plan to invest in its fleet and technology in order to reduce scope 1 and 2 emissions and achieve net-zero status. Meanwhile, on the social aspect, the company emphasises equal opportunity. Its board of directors, for instance, has three women among the eight directors.