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Friday, January 6, 2012

BW Plantation - Profitability Margins Remain Intact

by AAA Securities

BWPT’s performance remains intact in 9M11 with revenue jumped by 57.9% yoy and net profit by 65.3% yoy. Despite the drought, BWPT managed to maintain its high gross profit margin at 66.1% and net profit 35.6%. We however, adjusted down our revenue forecast and up our COGS forecast due to the lower FFB production and higher than expected third parties purchase of raw material in the 9M11. We recommend BUY with TP Rp1,300 which still gives potential upside of 16.1%.

Net Profit Growth Above 60%

BWPT booked an increase in revenue by 57.9% yoy to Rp660.8 bn and net profit 65.3 % yoy to Rp235.2 bn in 9M11. BPWT recorded an increase by 53% yoy in COGS to Rp224.2 bn in 9M11. 11% of the COGS in 9M11 were for third parties raw material purchase. As around 66% of BWPT’s planted areas are still immature, third parties FFB purchase is required to optimize the mill capacity.

We believe that BWPT will still do this in 2012. Other expense in COGS that increase quite significantly was fertilizing cost, by 89% yoy to Rp68.2 bn. Interest expenses recorded also higher by 88.5% yoy higher to Rp50.8 bn in 9M11. BWPT has obtained Rp1.3 trillion credit facility from BRI in 3Q11 of which Rp530 bn 9M11. The credit facility was divided into Rp1.25 tn for capex (Rp1.03 trillion for expansion in plantation and Rp221.5 bn for building new CPO mill). The rest Rp46.5 bn was for working capital. Although interest expense and loans are increasing, we do not worry about this as the leverage ratio is still good at DER of 1.48x and interest coverage ratio of 6.09x.

New Mill With 30 tons FFB/hour Capacity Will be Ready Early 2012

BWPT will add another mill with capacity 30 tons of FFB/hour in early 2012. With that additional mill, BWPT’s total mill capacity will become 135 tons of FBB/hour where the current capacity is 105 tons of FFB/hour. BWPT plans to increase the total capacity to around 195 tons of FFB/hour until 2014. The construction of the 60 tons of FFB/hour mill will start in 2013.

Sales to Wilmar more than 50%

Around 78.1% of BWPT’s total sales (or Rp660.8 bn in 9M11) were sold to regular buyers. Sales to Wilmar group represents around 52.4% in 9M11, and about 25.5% to Sinar Mas.

Valuation

Our valuation is based on consideration that drought and high cost will put some pressure on BWPT’s profitability for sometime to come. Thus, we downgrade our TP to Rp1,300 that still gives 16.1% potential upside. Our TP implies 15.5x roll forward 2012 PE.

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