Sunday, January 15, 2012

BW Plantation - Aggressive New Plantings

by ‎Etrading : BWPT

In the midst of moratorium law and maturing palm plantation industry, BWPT is set for the next years to come with approximately 93,000 ha under their belt of which as of December 31st 2010, 52,060 ha is planted. Across the industry, BWPT in the last few years had implemented an aggressive policy of new plantings. A more established plantation with limited extra land bank will want to wait before they regenerate old trees with the new ones and as a result they did not plant new trees on such a big scale like BW Plantation did. Hacking down still producing trees albeit old ones is the same like plugging one of their cash flow, this is one of the main challenges that a more established plantation with limited new land banks have. We believe this will benefit BWPT for the next years to come when other more established plantations are experiencing a declining yield per Ha as a result of their maturing plantation age profile.
Creation of Economies of Scale with the Introduction of New Technology

New technology like the bin system for fresh fruit bunches collection has created a better economies of scale for BWPT that are reflected in the improving gross margin averaging on the 60% level from a previously a mere 29% gross margin for the year 2005. This is where we would like to applaud BWPT for successfully integrating new technology for greater efficiency in their estates. The strategic location of their estates that are located in Kalimantan may have been one of their influencing key point why they can so easily integrate technology to their harvesting process. Human labor are scarcer for Kalimantan compared to Sumatra. Integrating technology to estates in Sumatra is much more difficult as the existing workers are resistant to changes fearing for their job security.

Walking the Talk

With regards to new planting target, FFB production target, and cost efficiencies, BWPT has walked the talk and pretty much met our expectation for the year of 2011. We are seeing more third party buying of FFB at 2H 11 for filling up their idle capacity in their existing mills which is not a bad thing considering that the average price for CPO is relatively high in 2011 compared to 2010 and 2009. Added income from manufacturing fresh fruit bunches to CPO is very much welcome amid relatively higher CPO price ticker.

Our Call
We are seeing a leveling off CPO price for 2012 with price floor of USD 895 net of tax and or USD 1,050. We are recommending a Buy for BWPT in light of their growth profile with target price IDR 1,310 or an upside of 12.9% reflecting a PE 2012 of 12

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