Sunday, June 12, 2011

Salim Ivomas Pratama Tbk.

by Credit Suisse Securities

Same good asset at deep discount. SIMP’s IPO is merely a corporate restructuring process for the group. Currently, SIMP’s assets are exactly the same as IFAR’s. At the IPO price of Rp1,100/share, we believe that investors are given the opportunity to buy these same good assets at a deep discount. We initiate coverage on SIMP with an OUTPERFORM rating, and a target price of Rp1,856—offering 69% potential upside.

Stacking up well against local peers. We believe SIMP’s fundamentals are as robust as, if not better than, its local peers. SIMP exhibits one of the highest growth outlooks given its relatively young plantation age profile than peers. It also has a more favourable cost structure, leading to relatively higher margins than peers. We expect FY11E earnings growth of 102%, with 1Q11A already contributing 27% of our FY11E earning forecasts.

Valuations have to converge. Despite having the same assets, the 2011E P/E implied by SIMP’s IPO price is at a 28% discount to IFAR’s current 2011E P/E and is at a 26%, 38% and 31% discount to LSIP, AALI and SGRO, respectively. Given the valuation gap, at the IPO price, we prefer to switch from IFAR to SIMP. Our SOTP valuation finds that on a standalone basis (excluding LSIP), SIMP’s IPO price implies 6.7x 2011E P/E, a 46% discount to IFAR and at a 54%, 45% and 48% discount to AALI, LSIP and SGRO, respectively. Our target price for SIMP is based on 15x 2011E P/E, in line with the 2011E P/E implied by our target price for LSIP given our view that the fundamentals of the two companies are comparable.

Risks to our forecasts: (1) Indonesian economic, regulatory, and political risks, (2) commodity prices, particularly for CPO and edible oils & fats, (3) fluctuations in the Rp exchange rate to US$, and (4) related party transactions with INDF, which is also the company’s majority shareholder.

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