by CIMB Securities
In line; maintain Outperform. 1H11 core profit of Rp170bn (+112% yoy) forms 55% of our FY11 forecast and 54% of consensus. The results are in line, taking into account a potential decrease in production along with easing CPO prices in 2H11.
Net income is also in line with the indicative figures released by the company last week. Margins had normalised due to FFB purchases, albeit still likely to be among the highest in our universe. We maintain our earnings estimates and target price of Rp1,480, still based on a 20% discount to NAV. CPO upside and land-bank acquisitions are possible catalysts.
Production frenzy. FFB and CPO production of 251k tonnes and 60k tones respectively made up 59% and 57% of our FY11 forecasts. CPO sales were lower than production, at 51% of our forecast, as part of its production was still stored as inventory. Unlike 2010 when 59% was produced in 2H, BWPT is expecting 2H11 production to make up just 47-48% of full-year production. Hence we are keeping our FY11 FFB production target of 424k tonnes. 1H11 CPO ASP made up 103% of our FY11 assumption. We expect weakening CPO prices in 2H11.
Margins shrank, though still healthy. Shrinking margins from 72% in 1Q11 to 69% in 1H11, albeit still above our FY11 forecast of 66%, were due to the purchase of 9,679 tonnes of third-party FFB (zero purchase in 1Q11) on top of higher fertilizer costs incurred during the fertilising period in April-May.
Aggressive new plantings through debt. Gross debt was Rp1.2tr (+10.9% qoq), with cash of Rp46bn (-46% qoq). This translates to net debt of Rp1.12tr (+17.9% qoq). 1H11 capex was Rp462bn (77% of company’s target). Higher-than-expected interest expense is attributable to higher debt taken to fund new plantings. With YTD new plantings of 4,416 ha (vs. our forecast of 10,450 ha and actual new plantings of 10,428 ha between 1H10 and 1H11), the company is confident of planting 10,000 ha in FY11. We continue to like BWPT for its aggressive new plantings and strong yields.