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Monday, August 1, 2011

Sampoerna Agro Tbk (SGRO)

by CIMB Securities

Ahead; maintain Outperform. Sampoerna Agro’s earnings, driven by strong fresh fruit bunch (FFB) production, surprised on the upside. 1H11 core net profit more than doubled yoy to Rp352bn, accounting for 70% of our FY11 forecast and 65% of consensus. Factoring in the better yields, we upgrade our FY11-12 earnings estimates by 7-20% and raise our target price from Rp4,100 to Rp4,500, still based on a P/E target of 14.5x (10% discount to our target for AALI). We maintain our OUTPERFORM rating. Catalysts include sustained strong production and a larger contribution from its sago business in 2H11.

Production booms but margins normalise. The company continued to enjoy strong harvests in 2Q11, particularly in its plasma estates with 1H11 production of 835k tonnes already at 58% of our FY11 forecast. The FFB production anomaly in 1H11 was seen in most of the planters under our coverage. We believe this year’s unusual production patterns are likely to continue for the rest of the year which could mean a lower-than-expected percentage production contribution in 2H11.

Based on a surprisingly strong 1H11 and possibly less buoyant 2H11, we upgrade our FY11-12 FFB and CPO production by 4-11%. ASPs in 1H11 came in broadly in line at Rp7,880/kg. In contrast to 1Q’s strong margin of 44%, the margin in 2Q normalised to 36% due to the proportionately higher contribution from its plasma estates.

Sound balance sheet. As at end-Jun 11, Sampoerna Agro’s cash balance was Rp668bn, translating to a net cash position of Rp345bn vs. net cash of Rp278bn as at end-Mar 11. 1H11 capex was Rp250bn, accounting for 48% of our FY11 estimate. The company is behind schedule in its new plantings (1,445ha in 1H11 vs. an earlier FY11 target of 10k ha) but said that it plans to accelerate the process and would achieve its 10k ha target by Feb 2012.

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