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Wednesday, November 16, 2011

BW Plantation - Right on the Dot

by Etrading Securities

In Line Earnings

BW Plantation has pretty much meet all our expectations for the year of 2011 at least during the 9M 11. Sales 9M 11 increased as much as 57.9% YoY (year on year) compared to 9M 10 and made up about 76.8% of our full year 2011 forecast (FY2011F). Operating profit and net profit increased 69.2% and 65.3% YoY compared to 9M 10. BW Plantation’s net profit for 9M 11 made up of 77.7% of our FY2011F. Please refer to table 1.1 - Consol-idated Profit and loss on page two (2).

Level Off Production

While production for fresh fruit bunches (FFB) in 3Q 11 compared to 2Q 11 declined as much as 26.5% QoQ (quarter on quarter) and plasma produc-tion has a slight increase of about 4.3% QoQ compared to 2Q 11. We see that for the year of 2011, production for BW Plantation has peaked on the 2nd quarter specifically during April – Jun 2011 period. Across the palm in-dustry, we have been noticing a decreasing trend of FFB production in the 2H 11. Their FFB nucleus, CPO, and Palm Kernel production for 9M 11 are pretty much in line with our FY2011F. Please refer to table 1.2 – Production Review

Third Party Buying

Starting from May 2011, BW Plantation has started to buy FFB from a third party to boost up production of CPO. Third party buying made up about an average of 11% of the total FFB production (Nucleus & Plasma) by BW Plan-tation. As you can see in table 1.1 below, gross margin in 3Q 11 is 59.3% which is lower by 7.5% QoQ and 15.5% YoY compared respectively to 2Q 11 and 3Q 10 margin. Accumulatively however, 9M 11 margin has a slight in-crease of 1.2% compared to 9M 10. Likewise, their 3Q 11 operating margin suffers a decline of 14.4% (QoQ) and 16.1% (YoY). We assume this must be because of the third party purchases of FFB to fill up their idle capacity in the factory because of their regressing FFB production in the third quarter.

Our View

Palm oil price is still higher QoQ and YoY- wise. Ytd 2011 Palm oil price is also higher than last year. Viewing that palm oil price has leveled off and there are signs of a strong price floor, we are still on target for BWPT’s FY 2011 earnings. We are still recommending Buy for BWPT with target price Rp 1,450 reflecting a PE12 of 15.

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