Astra’s palm oil profits slowing, but heavy equipment on the rise

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Diversified conglomerate PT Astra International (ASII) is seeing pressure on the bottom line of its palm oil business, while profits from its heavy equipment subsidiary grows, amid the challenge of falling commodity prices.

Net profits of publicly listed plantation company PT Astra Agro Lestari (AALI) dropped 24 percent to Rp 958.61 billion (US$100 million) in the first six months of this year from the same period last year, while heavy equipment distributor PT United Tractors (UNTR) enjoyed a 22 percent growth in net profits to Rp 3.08 trillion.

Both firms saw increases in their revenues. “The increase in sales in the first six months of the year was supported by an increase in domestic sales,” Astra Agro said in a written statement.

Astra Agro sold 631,939 tons of crude palm oil (CPO) on the domestic market, which accounted for about 98.1 percent of total sales volume. The major buyers of Astra Agro’s products are PT Wilmar Nabati Indonesia, PT Nagamas Palmoil Lestari, PT Salim Ivomas Pratama and PT Sinar Mas Agro and Technology.

The company sold a total of 644,439 tons of CPO in the first half of this year, growing by 13.7 percent from the January-June period of 2011, supported by an increase in production. Astra Agro’s CPO production reached 636,497 tons during the first six months of this year, up 7 percent from a year earlier.

But the increase in revenue failed to help Astra Agro grow its net profits due to a lower average selling price for CPO and surging costs.

Astra Agro sold its CPO at an average of Rp 7,886 per kilogram from January to June, down 1.6 percent from the same period a year ago, while its cost of revenue rose 18 percent to Rp 3.85 trillion.

Shares in Astra Agro dropped 1.13 percent to Rp 21,900 following the announcement.

Palm oil companies in Indonesia, the world’s top palm oil producer, are facing the same challenge of lower selling prices, after palm oil prices rallied last year, on weakening global demand that has pushed down prices against the backdrop of the global economic slowdown.

But Indonesia has shown a resilience to external shocks, having maintained stable 6 percent plus growth in the past couple of years, providing an opportunity for businesses to expand factories.

That has been reflected in the increasing demand for heavy equipment, benefiting companies like United Tractors.

United Tractors reaped Rp 30.61 trillion in net revenue in the first six months of the year, a 19 percent increase compared with the same period last year, thanks to strong demand for heavy equipment.

“The increase in net revenue came from the heavy equipment distribution business unit [46.6 percent], mining contracting business unit [41.9 percent] and mining business unit [11.5 percent],” United Tractors said in a statement.

In the heavy equipment distribution business, United Tractors actually saw a 2 percent lower sales volume. “This was due to a slowdown in demand for heavy equipment in the mining sector, which was affected by the decline in the coal price.”

Most of the sales volume of Komatsu, United Tractors’ brand of heavy equipment, went to the mining sector, followed by plantations, construction and forestry.

“Increasing competition particularly in the small heavy equipment sector, which is most widely used and produced, caused Komatsu’s market share to decline to 44 percent,” United Tractors revealed.

Shares in United Tractors traded at Rp 21,150 apiece on Wednesday’s trading close, unchanged from the prior day.