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Monday, April 25, 2011

BW Plantation (BWPT) - More Than The Bottom Line

by E-Trading Securities

CPO Outlook

Good upside chance for CPO prices considering limited y-o-y production growth from Malaysia considering the age of their plantations. Increased productions will be absorbed by substitute vegetable oil user whereby
bio-diesel mandate will increase demand for other vegetable oil.
 
2010 – Rising Prices Coupled with Steady Production

An 18.3% price hike y-o-y to IDR 7,236 helps boost revenue and no 3rd party purchases means keeping the cost down. Production of FFB increased 24% q-o-q and 20% y-o-y while CPO production increased 26% q-o-q and 22% y-o-y. Significant increase of 11.3% in CPO price also occurred in 2H 10 from IDR 6,502 ASP in 1H 10. All these contributed in boosting the bottom line up to a whooping 46% compared to last year.


Larger Producing Area in Immediate Future

With aggressive new planting strategy adopted by BW Plantation over the past few years starting from 2008, BW Plantation has just begun reaping the fruits of their sows. Total producing area for BW Plantation for the year of 2010 is 39% of total planted area and will be increasing at a 8.45% CAGR each year until 2015. We expect an average of 9,253ha of new plantings per annum till 2015.

Modernized Plantation Process Translated Into Better Margins

Only 45% of the whole process is mechanized in 2010, the management is thinking into expanding this mechanization process to 85% in 2011; translated into lower costs and higher margins.

Pricing Power

With the completion of Serimbang Jetty and built-in pipeline, the clientscan save time on loading the CPO to their chartered ship. Usually it takes up to 3 days of loading time for them, with the built-in pipeline, the process is cut to just 1 day thus helping the clients in saving the cost of their chartered ship. This competitive advantage enables them to apply a premium to their CPO price compared to their peers.

Upgrade in Target Price

Upgrade TP to IDR 1,450 – We upgrade our target price from IDR 1,260 to IDR 1,450 due to future projection growth and cost efficiencies that lead to better margin. There’s a 26% upside potential to the current share price – we call Buy.

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