Friday, January 20, 2012

Gozco Plantations Tbk. - Land Banks Under the Belt

by Etrading

Left and right we are seeing plantations scrambling to acquire land to add on to their current land banks. In the midst of moratorium law and intense scrutiny from organization like WWO will escalate the fight for lands. Current land banks for GZCO relative to other much more established company is plenty enough to avoid any road bumps in the future resulting from the scarcer and scarcer lands and or difficult land clearing regulations that will hinder new plantings for future production growth.

Bottom Line Booster

Gains from associate company or in this case Indotruba had pretty much improved the bottom line for GZCO for the last consecutive quarters. The other booster comes from utilization of idle capacity from the new mill. Even if margin from manufacturing third party FFB instead of own nucleus FFB is smaller nevertheless it’s a relevant strategy adopted by GZCO to boost their bottom line.

Cost Efficiency will Fatten Up Margins

Gains from associate company and manufacturing margin from third party purchases is not enough to make GZCO looks attractive in the income statement. However we believe if GZCO can introduce cost efficiencies to any of their operating costs, it makes a big difference. With cost efficiencies, comes fatter margins, with fatter margins give off decent net income.

Our Call

GZCO is still a Hold with target price IDR 335 or 26.4% upside in our view from a growth stock
perspective. Ample land banks for future new plantings in a land-rarity environment, inorganic
growth from associate company namely Indotruba and manufacturing profit that nonetheless is still yielding out profits to be enjoyed by GZCO.

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