by Trimegah Securities
Favorable Growth Outlook…
LSIP’s FFB production in 9M11 was slightly ahead than our expectation. Both of plasma and nucleus produced 1.4mn tons of FFB, forming 80.0% of our 2011 estimate. Going forward, we expect 5.6% YoY increase on FFB production in 2012 to reach 1.9mn tons on the back of higher yield expected in South Sumatra and its relatively young plantation estate. In medium term, we are looking for 6.0% 5-year CAGR of FFB production. In contrasts, rubber production was surprisingly far below our expectation in 2011. As such, we cut our rubber production forecast to 15,400 tons in 2012 and 15,800 tons in 2013.
… Coupled with Favorable Estate Profile
LSIP estate has an average age of 11 years old as of 2010, which is an ideal level in our view. 34.8% of company’s CPO planted area in 2010 were still an immature and young age plantation (< 7 years old), which will become company’s source of growth in coming years. In 2011, management has implemented a new block management system for more effective control, which made the company’s statement of total planted area slightly decline to 99,338ha. Management stated that the re-measurement will not impact to any crop production going forward.
Intensifying the Infrastructures Development
Firstly established in 1995, South Sumatra estate currently accounts for 44.0% of total company’s planted area, higher than the properly-established estate in North Sumatra. Due to lack of infrastructures and historical values under investments, South Sumatra has a lower yield than North Sumatra, weighing down the company’s blended yield. Since its acquisition by Indofood, LSIP has aggressively funded infrastructure development in the region to improve the yield. After being halted in 2010 due to weather related issue, the management plans to accelerate its infrastructure development in 2011 and later, in South Sumatra estate. Better road transportation built along the housing construction would lead to better handling of FFB, hence improving the yield on the region. In Oct’11, LSIP has been awarded RSPO cerification for its 3 estates and 1 POM in South Sumatra.
Maintain BUY, TP of Rp3,000
We maintain our BUY call on the counter driven by its favorable growth outlook and yield improvement coming from its South Sumatra estate. We incorporate our higher FFB production estimate to reflect company’s better production in 9M11. Our 2011-2013 FFB production estimates now is 2.1%-3.8% higher. We also lower our costs assumption as a result of better company’s costs management, delivering a higher operating margin in FY12-FY13. As a result, our FY12-FY13 EPS increased by 14.3% and 19.9%, respectively. On the flip side, we cut our price multiple target to reflect the global macro uncertainty (similar with it peers) to 13x forward PE, implying our new TP of Rp3,000.
Key Risks: CPO prices fluctuation, worse than expected upcoming La Nina should give an upside risk to our forecast, the listing of four INDF’s agriculture related entities would provide risks for LSIP.