Friday, November 25, 2011

Plantation Sector

by Lauthandana Sec


Positive outlook for CPO industry

CPO is a product of the most popular vegetable oils to be consumed. We are optimistic positive growth for the plantation sector as the trend of increasing production and consumption of global vegetable oil. Growth in global CPO production this year is predicted at 8.5% and consumption by 5.1% compared to 2010.

Trend of strong demand and supply

World population growth and rising purchasing power of the community will be the main drivers of increasing demand for CPO in the future. Despite the current global conditions are still volatile, we believe demand for palm oil will remain high because approximately 80% of palm oil products used as raw material products of basic human needs.

The moratorium does not have much impact

Moratorium policy set forth in Instruction No.. 10 of 2011 does not have much impact for producers of CPO. Broadly speaking, the Instruction states delay the conversion of primary forests and peatlands for 2 years in the framework of nature conservation. LSIP and SGRO already has sufficient land for expansion up to 2 years. Meanwhile, Aali will perform optimization on the existing land for nearly 100% of land has been planted Aali.

CPO price assumption of positive

We are optimistic that the average price reasonable for the global CPO in 2011 will be at the level of U.S. $ 1.080 / metric ton and 2012 amounted to U.S. $ 1.160 / metric ton of crude palm oil underpinned by high global demand and the impact of the moratorium will support the increase in CPO prices.

9M11 The performance is satisfactory

9M-2011 performance of issuers that we cover CPO experiencing positive growth. Sales up to September 2011 rose by an average of 56% YoY, gross profit grew by an average of 62% YoY, operating earnings increased on average by 71% YoY, and net income rose an average of 81% YoY.

Stock options: Rp 3.050 LSIP TP, TP SGRO Rp 4.050, Aali TP Rp 23.550

Our main stock options is Rp 3.050 LSIP with TP offers the upside gain is highest, the highest net profit until the third quarter-11, the margin above the competitors, the highest OER than SGRO and Aali, a large market cap so that more liquid, as well as tax rates only income tax subject to 20%. The next choice is SGRO very exciting to be collected for the long term with TP to Rp 4.050 following the age profile in the phase of productive plants, green fields of the largest land bank in order to boost production increases, CPO sales volume growth potential 5-year CAGR to 13%, offer upside gain of 30% , as well as attractive valuations. The final choice is Aali with TP Rp 23.550 with a potential upside gain of 7%.

Risk plantation sector

Some of the risks overshadowing the plantation sector are: 1) the global economic slowdown is feared to put a halt to CPO demand, 2) decrease in CPO prices, and 3) substitution products will replace the CPO, such as soya oil.

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