Friday, November 25, 2011

PT London Sumatra Plantation Tbk - Revenue Driven by Higher Volume

by Batavia Prosperindo Securities

· Best Performance in 9M11

LSIP recorded excellent financial performance in 9M11. Net sales grew by 46.6% y-o-y to Rp3.52 trillion driven by higher sales volume of palm product and “SumBio” oil palm seeds as well as higher palm product and rubber prices. Sales volume of CPO rose by 28% y-o-y to 309,801 tons while sales of “SumBio” seeds was up to 17.6 million seeds (+39% y-o-y). Around 94% of the total CPO sales volume was sold to PT SIMP as its parent company.

ASP of CPO in 9M11 increased by 17.4% y-o-y from Rp6,635.7 per kg to Rp7,786.3 per kg. LSIP recorded 21.1% y-o-y higher sales of rubber to Rp472.2 billions, although production and sales volume were down by 27.1% and 20.5% respectively due to less crop purchased from plasma and 3rd parties.

Until September 2011, LSIP produced Rp1.3 trillions of net profit or increased by 104.5% y-o-y along with increased net sales. Net profit until that period is reflecting 84% of our full year 2011 estimate. In operation side, in 9M11, LSIP processed 1.38 millions of FFB (+24.3% yo-y) and produced 318,197 tons of CPO or up by 24.3% y-o-y with 23.1% CPO extraction rate. LSIP produced 10,931 tons rubber or decreased by 27.1% y-o-y.

· Recommend BUY at Target Price of Rp3,000

We predict that growth performance during the 9-month period of 2011 represents the peak of achievement for the full year 2011, considering external factors such as the start of the rainy season in the 4th quarter of 2011, which will impact on crop and plant production.

We also expect commodity prices in the near future will not be in increasing trend, due to ongoing financial crisis in Euro zone and impact of tightening policy in China. In our valuation, we assume average price of CPO (Palm CIF Rotterdam) for the year 2011 and 2012 are respectively USD 1,100 and USD 1.050 per MT.

Our DCF valuation model with WACC of 11.2% result in target price of Rp3,000, 12X FY12F PE. We recommend BUY with 31.9% potential upside from the closing price (11/15) Rp2,275.

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