Wednesday, May 25, 2011

PP London Sumatera Indonesia Tbk

By  Ciptadana Securities

Earning increased by 134% YoY – LSIP reported earning 1Q11 of IDR 394.2bn, increased by 134.8% YoY, due to production growth and higher average selling price. LSIP’s CPO production grew by 19.6% YoY to 88,004 ton, meanwhile average CPO price in 1Q11 increased by 42% to RM3,649/ton. Hence these translate into 72.9% growth in sales and 121.3% growth in EBIT. These results were in line with our projections.

Overall results are in line – Overall results were in line with our projections. LSIP’s sales and earning 1Q11 were 25.4% and 26.7%, respectively of our full year projection. In term of EBIT and EBIT margin, results were quite higher due to higher CPO price in 1Q11; however this were still within our estimation. Our view is CPO price will decline in 2Q11 and might only regain in 3Q11 with the expected average 2011 CPO price of RM3,300/ton. Quarterly growth will be dominated by production side; hence margin will squeeze on quarterly basis but grow on yearly basis.

Production follows usual pattern – FFB nucleus and FFB plasma and 3rd party grew by 14.5% and 42.4%, respectively, pushed by better weather in 1Q11. These translate into 19.6% CPO production growth. 1Q11 CPO production was 22.3% of our full year production projection. This was within our estimation as LSIP had 2 years consecutive low production in the 1Q, about 21% of total year end production. Hence, we believe that this year pattern will follow the usual pattern.

Maintain Buy – We maintain our buy recommendation for LSIP with a target price of IDR3,000/share. We believe that this year will be another good year for plantation industry. LSIP has a solid growth of production in the comfortable CPO price environment, 20% above average 2010. LSIP is our most preferred stock for plantation industry and now LSIP only trades at 11.34x PE2011, 18% discount to AALI (13.78x PE2011).

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