Sunday, January 15, 2012

Bakrie Sumatra Plantations Tbk - A Fully Integrated Plantation Company

by Etrading : UNSP

Bakrie Sumatera Plantations (UNSP.JK) currently managing more than 125,000Ha planted area and operates 12 factories with combined capacity of 715,000MT per annum producing a combination of upstream and downstream products namely crude palm oil, palm kernel, rubber, and oleo chemicals. With the current export tax environment for Oil Palm products in Indonesia that is more conducive toward the downstream players, we believe that UNSP will be one of the beneficiaries trough its full integrated Oil Palm business. On top of it, UNSP has the opportunity to capture strategic synergy from the upstream production to the value-added manufacturing of downstream derivatives.
9m 11 Improving Operational Performance

For 9M 11 UNSP recorded 34% and 31% increased respectively for CPO and PK productions. The developments can be traced back to better fertilizer applications and advancement in UNSP’s age profile resulting in higher FFB yield per ha reaching 16t/Ha (annualized). We believe this positive trend to continue next year and expect FFB yield to gradually narrow the gap with industry average.

Growing Product Portfolio – Oleo chemicals added to the mix

We believe Asian demand for oleo products will continue to grow approximately at 5%-7% per annum. Oleo chemicals industry gives an estimated 40% value-added boost to the value of CPO and PKO. On top of the 15% gross manufacturing margin, Oleochemicals can also boost up earnings by saving on the tax incentives. CPO and PKO are under progressive tax policy with benchmark price above US$1250 taxed at the 22.5% tax bracket while refinery products with benchmark price above US$1250 is taxed between 10%-15% and no tax for Fatty Alcohol products.

The Largest Rubber-Exposed Listed Plantation
UNSP currently is Indonesian listed company with the largest rubber planted area of 18,477 ha.
Rubber production by UNSP in FY2010 is significantly higher or roughly about 62% higher than another company with rubber exposure in the industry. Rubber sales contributed about 26.7% of total sales for UNSP; second key revenue generator after palm oil in their sales breakdown. By being the largest rubber-exposed listed plantation in terms of planted area and production, UNSP does not miss the boat like some others do. Please note that average selling price for 9M 11 of rubber is USD 4,727/MT or a 61% increase from USD 2,932/MT.

UNSP Offers Attractive Valuations

UNSP is valued at a discount compared to peers currently in terms of revenue growth, price-tobook, and price to earnings ratio. The compounded annual rate growth for Bakrie Sumatera
Plantation for the last five years is 20.5% and its one-year revenue growth according to Bloomberg is 29.21% beating the industry average of 16.01% by quite a significant margin of 13.20%. Earning is under pressure because of the high gearing as they incurred additional debts in the process of acquiring smaller plantations and Oleochemicals assets in particular.

Remembering that land banks are getting few and far in recent years and the growing demands of oleo chemical products in future years, recent acquisitions of debt-ridden plantations and Oleochemicals may present a positive surprise for UNSP in the future. Considering that UNSP’s price-to-book ratio is valued at 0.44 compared to the 2.28 industry’s average PB ratio, we believe that UNSP is somewhat attractive even with the highest gearing across the plantation industry.

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