29/03/2017 (Indonesia Investments) - Indonesia's largest supplier of crude palm oil (CPO), Astra Agro Lestari, is expected to see improving corporate earnings in the years ahead on the back of the rising CPO price and expectation of the company's climbing CPO production volume. The year 2016 was a good year for Astra Agro Lestari as it reported a 224.2 percent year-on-year (y/y) jump in net profit and a 7.6 percent (y/y) increase in sales, led by sales of CPO and derivative products. This was a great recovery from the preceding year. CPO and derivative products account for more than 86 percent of the company's total sales.

Soaring profit of Astra Agro Lestari in 2016 was partly caused by the company's foreign exchange gain. The stronger Indonesian rupiah delivered the company IDR 200.6 billion in foreign exchange gain last year (whereas in the preceding year its foreign exchange loss was IDR 580.4 billion).

Another key reason that explains the jump in profit was the strengthening CPO price in 2016. On the Kuala Lumpur bourse the CPO price climbed 25 percent to 3,000 ringgit per ton in 2016, supported by declining CPO production in Indonesia and Malaysia, the world's largest suppliers of palm oil (this production decline was caused by weather-related issues).

The rising CPO price last year provided a fresh wave of air in the palm oil sector. This was also visible in the share performance. Astra Agro Lestari, listed on the Indonesia Stock Exchange, saw its shares rise 5.84 percent in 2016. This is a sharp contrast to the company's share performance in 2017. So far this year its shares fell 12.67 percent to IDR 14,650 a piece. This weak performance is in line with the 5.8 percent contraction of the CPO price in early 2017. Thus, those who want to invest in shares of Astra Agro Lestari need to carefully monitor the direction of the CPO price.

Stock Quote Astra Agro Lestari - AALI: