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Thursday, July 21, 2011

PT. Gozco Plantations Tbk - Moving on

by Bahana Securities

High 2Q11 new planting; moving ahead as expected

Despite limited new planting of around 800 ha in 1Q11, Gozco Plantations (GZCO) have planted around 2,000 ha of new planting in 2Q11, bringing ytd newly planted area to nearly 3,000 ha or accounting for approximately 50% of our FY11 new planting target of 6,500 ha. It is worth noting, as 90% of its 94k ha unplanted area (exhibit 8) are waived from the new planting permit moratorium, it would enable GZCO to continue expanding with annual additional planted area of around 6.5 ha per annum going forward. Hence, we believe that GSZO is likely to move ahead with its expansion plan to meet its 2011 new planting target.

Weak share price due mainly to share divestment

GZCO’s 23% ytd market underperformance on the back of the divestment of 10% stake in GZCO by one of the shareholders, Barito Pasific (BRPT). This was owing to by BRPT’s failure to acquire additional 10% stake in the company, making up the total of 20%. With 20% stake in GZCO, BRPT was intended to consolidate the company’s earnings in its book. However, we believe that selling pressure has gradually eased as most of shares have been executed and sold to AmFraser Securities ( Singapore ).

1H11: strong results on high production yields

We believe 2Q11 GZCO’s FFB production is likely to reach 40k tons with its third parties’ FFB of 25k tons. Combined with 2k tons of inventory in 1Q11, the 2Q11 expected 14k tons of CPO production would allow the company to book revenue of IDR151k (+105% y-y). Additionally, GZCO’s higher net ASP of IDR7.7m/ton (+17% y-y) has helped the company to bolster the 2Q11 revenues. As consequence, we expect GZCO’s 2Q11 earnings to reach IDR 55b (+230% y-y), bringing 1H10 earnings to IDR100b. This is inline with our expectation and the market consensus, which accounted for approximately 52-53% of FY2011 estimates.

Cheap valuation + Strong growth ahead = BUY!

On the back of strong growth ahead from higher production, GZCO’s 2011 top and bottom lines are on targets to reach IDR610b (+34% y-y) and IDR193b (+20% y-y) respectively. Its commitment to consistently plant on the massive unplanted area would ensure its long term growth of the matured area, growing at CAGR of 23% over the next few years (exhibit 10). This would translate into 15% EPS growth going forward. GZCO is currently trading at undemanding valuation at 2012P/E of 8.6x or 35% discount to the industry’s average. Given its promising long-term growth outlook with PEG of only 0.8x, we believe that GZCO deserves re-rating on its valuation. Despite our Neutral rating on the sector, we maintain our long-term positive view on GZCO with a target price of IDR490 (+32% upside potential), trading at 2012 implied P/E of 11.4x (22% lower than the sector’s average P/E of 14.5x) and PEG of 1.1x (17% lower than the sector’s PEG of 1.3x). BUY.

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