Wednesday, November 16, 2011

Sampoerna Agro Tbk - Thanks to Conducive Weather

by Batavia Prosperindo Securities

• In-line 9M11 result

The company (SGRO) booked 9M11 revenue of Rp 2,517 billions or up by 84% yoy, on the back of 24% increase of ASP and 42% increase of FFB production, contributed partially by the relatively dry weather. CPO production rose 46% yoy. In the bottom line, net profit was up by 86% yoy to Rp 469 billions. This reflects 78% of our 2011 estimation and 76% of Bloomberg’s 2011 estimation.

• Future outlook

The currently-constructed sago starch factory is expected to start production in 2012. We expect little or less than 5% contribution from sago starch to the total revenue in the next few years. In the near future, we see some risk in CPO price movement due to global slowdown. However, the relatively high proportion of FFB production from plasma may help maintain its profit margin, as the government-determined FFB purchase price also follows international price. Besides, we see possible increase in export tax expense in the future as export grows and the government is pushing towards downstream CPO product development.

• Recommend Buy with TP of Rp 3,650

Despite the above-mentioned risks, our DCF valuation with WACC of 12.5% and terminal growth rate of 4.5% leads to target price of Rp 3,650 or at 11.4x 2012 PE. We recommend BUY this stock with potential upside of 17.7% from the current price of Rp 3,100.

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