Monday, December 12, 2011

BW Plantation - Superior Growth is More Than Enough

by Trimegah Securities

Get Ready for a Strong Growth Ahead

We expect the company’s FFB production to reach 455.7k tons in 2011, increased 18.9% YoY. For 2012, we expect a further 30.7% growth (largest compared to its peers) to reach 595.6k tons. The superior growth is mainly driven by 8,000ha of new planting in 2008 (equivalent to 40.7% of current matured area), which is likely to become a mature plantation next year. We expect such trend to continue in medium term, implying 23.5% of the five-year CAGR of FFB production growth compared to 5.2% of average peers. In contrasts, because of the new young matured area has yet given the optimal production, we expect the company’s FFB yield to decline in the next 2-3 years.

On Track to Meet Its MT Sustainability

Until 9M11, BWPT has managed to add 5,565ha of planted area, consisting of 2,912ha nucleus and 2,653ha plasma. We understand that the number is only representing 53% of both our and management’s 2011 target. Nevertheless, if we compared it to other plantation companies among our coverage (2,000ha-3,000ha on average), such additional planted areas are acceptable. The company’s consistent new planting since 2007 would provide a medium term sustained growth by replacing the old 1998-2000 planting in the next five to six years. BWPT still owns more than 40,000ha of land bank, which is enough to feed the company’s expansion program until 2014.

Net Gearing Up, However It Still Within Management’s Target

Based on 9M11 financial statement, the company’s debt to equity ratio rose to 1.15x (the highest among our coverage), which was driven by the Rp530.9bn of new outstanding loan from BBRI. We understand as the newly developed company coupled with the aggressive expansion program, external funding is a main option. Based on our latest discussion with the management, BWPT’s capital structure policy is to keep its debt to equity ratio below 1.5x.

Maintain BUY, TP of Rp1,600

BWPT remains as our top pick on CPO sector, mainly driven by its outperforming growth potential as well as margins compared to its peers. We do believe that the growth prospect is what investors are looking for nowadays, particularly in the middle of soften CPO prices outlook. 9M11 results are mostly inline with our expectation but minor revisions were made to incorporate the company’s newly acquired loan from BBRI. We maintain our price multiple target of 14.3x forward PE, 10% premium to its peers justified by company’s superior EPS growth. It implies TP of Rp1,600.

Key Risks: CPO prices fluctuation, company’s rich valuation.

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