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Sunday, March 20, 2011

PP London Sumatera Indonesia Tbk (LSIP)

by Credit Suisse Indonesia

• LSIP reported 79.5% YoY, 74.8% QoQ 4Q10A earnings jump, supported by strong 4Q10A rubber price. LSIP’s FY10A earnings are up by 46.1% YoY, 14% ahead of our forecast and 4% ahead of consensus.

• 4Q10A CPO output was down by 0.5% YoY, up by 13.2% QoQ, but remained 8% below our FY10E forecasts. LSIP 4Q10A robust earnings growth has largely been driven by the surge in rubber prices with contribution of rubber to LSIP’s revenues jumping from 11% in FY09A to 15% in FY10A.


• Given LSIP’s weak FY10A CPO output, we reduce our FY11-12E CPO output forecast by 5.2%. We tweak down our FY11-12E earnings forecasts for LSIP by 1.2-2.7% on lower CPO output assumptions.

• We maintain our NEUTRAL rating on LSIP and lower our target price from Rp13,030/share to Rp12,900/share as we reduce our FY11E earning estimates. Our target price for LSIP is based on 15x 2011E P/E.

4Q10A: benefitted from rubber price surge LSIP reported 79.5% YoY, 74.8% QoQ 4Q10A earnings jump, supported by strong 4Q10A rubber price. LSIP’s FY10A earnings up by 46.1% YoY, 14% ahead of our forecast and 4% ahead of consensus’ forecasts. 4Q10A CPO output down by 0.5% YoY, but up 13.2% QoQ. LSIP’s 4Q10A CPO output came 8% below our forecast.

LSIP 4Q10A robust earnings growth has largely been driven by the surge in rubber prices. Rubber’s contribution to LSIP’s total revenue surged from 11% in FY09A to 15% by FY10A, largely driven by price rather than volume. Indeed, LSIP’s FY10A rubber output was down by 15% YoY.

We expect LSIP’s FY11E CPO output to improve by 15%YoY on the back of more favourable weather. However, given LSIP’s weak FY10A CPO output, we tweak down our FY11-12E CPO output forecasts by 5.2%. We tweak down our FY11-12E earnings forecasts for LSIP by 1.2-2.7% on lower CPO output assumptions.

Maintain NEUTRAL
We maintain our NEUTRAL rating on LSIP and lower our target price from Rp13,030/share to Rp12,900/share as we adjust down our FY11E earning estimates. Our target price for LSIP is based on 15x 2011E P/E.

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