plantation sector outlook
TRANSCRIPT
Sector Outlook
PlantationPlantation
Prepared by: Linda Lauwira
Positive Drivers for CPO:
Average Average
Price for CPO Price for CPO Positive Drivers for CPO:
Emerging Market Demand
Biodiesel Mandate
Price for CPO Price for CPO
in 2012 in 2012
USD 1,050
Global Consumption
Composition - Vegetable Oil
Global Consumption
Composition - Vegetable Oil
Increasing Importance of Palm
Oil
Increasing Importance of Palm
Oil
Palm Oil Role in the 8 Major Vegetable Oil Palm Oil Role in the 8 Major Vegetable Oil
54.46
54.55
43.14
42.97
22.88
22.87
Nov
2011/12
Dec
2011/12
Palm oil consumption representsthe lion share of about 36 – 37%from total consumption of 8 majorvegetable oil for the last 5 years orsince 2007.
Source: USDA
43.87
47.02
49.41
52.29
37.72
36
38.25
40.98
18.24
20.13
22.42
23.31
0% 20% 40% 60% 80% 100%
2007/08
2008/09
2009/10
2010/11
Oil Palm Oil Soybean
Oil Rapeseed Oil Sunflowerseed
Oil Cottonseed Oil Peanut
Oil Coconut Oil Olive
since 2007.
CAGR for palm oil consumption(2007 – 2011) is 4.4% while CAGRfor soybean oil, the closestsubstitute for palm oil is only 2.7%.
Demand for vegetable oil willcontinue to expand rememberingthat GDP per capita in thesecountries is still far from the levelwhere food necessities becomessecondary.
Palm Oil Consumption Relative to Palm Oil Consumption Relative to
Emerging Market GDP per CapitaEmerging Market GDP per Capita
-
1.00
2.00
3.00
4.00
5.00
-
2,000
4,000
6,000
8,000
1990 1994 1998 2002 2006 2010
Palm Oil
Consumption
per Capita
GDP per
Capita PPP
Adj
China GDP per Capita &
Palm Oil Consumption per Capita
CHN GDP PER CAP PPP ADJ.
-
1.00
2.00
3.00
4.00
-
1,000
2,000
3,000
4,000
1990 1994 1998 2002 2006 2010
Palm Oil
Consumption
per Capita
GDP Per
Capita PPP
Adj
India GDP per Capita &
Palm Oil Consumption per Capita
INDIA GDP PER CAP PPP ADJ.
Source: USDA, Bloomberg
CHN GDP PER CAP PPP ADJ.
CHINA PALM OIL CONSUMPTION PER CAP
INDIA GDP PER CAP PPP ADJ.
INDIA PALM OIL CONSUMPTION PER CAP
-
5.00
10.00
15.00
20.00
25.00
-
1,000
2,000
3,000
4,000
5,000
1990 1994 1998 2002 2006 2010
Palm OIl
Consumption
per Cap.
GDP per
Capita PPP
Adj.
Indo GDP per Capita &
Palm Oil Consumption per Capita
INDO GDP PER CAP PPP ADJ.
INDO PALM OIL CONSUMPTION PER CAP
-
2,000
4,000
6,000
8,000
Jan-90 Jan-94 Jan-98 Jan-02 Jan-06 Jan-10
GDP per Cap
PPP Adj.
(USD)
GDP per Capita for
China, India & Indonesia
CHN GDP PER CAP PPP ADJ. INDIA GDP PER CAP PPP ADJ.
INDO GDP PER CAP PPP ADJ.
Malaysia
Production Trend
Production in Malaysia had
reached the same level of
output back in the 3rd and
4th quarter of 2008 where
subsequently the CPO price
in Malaysia and JAKAGRI
index in Indonesia hits their
20
07
20
08
20
09
20
10
11
M
10
11
M
11
Beg. Stocks 1.51 1.68 1.99 2.24 1.93 1.64
Production 15.82 17.73 17.56 16.99 17.28 18.65
YoY Growth (%) -0.4% 12.1% -1.0% 3.3% 7.9%
Consumption 15.65 17.42 17.32 17.62 17.58 18.22
Ending Stocks 1.68 1.99 2.24 1.62 1.64 2.06
Disappearing
ratio (%)
9.7% 10.3% 11.4% 8.4% 8.5% 10.2%
index in Indonesia hits their
lowest point.
The difference between
2008 and 2012 will be the
continued strong demand
from emerging market and
bio-diesel mandate from
various countries like
United States and Argentina
that will serves as a price
floor for CPO.4Q 2011* - October and November 2011 Inventory and Price Index
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
-500.00
1,000.00 1,500.00 2,000.00 2,500.00 3,000.00 3,500.00 4,000.00 4,500.00 5,000.00 5,500.00
1Q
20
07
2Q
20
07
3Q
20
07
4Q
20
07
1Q
20
08
2Q
20
08
3Q
20
08
4Q
20
08
1Q
20
09
2Q
20
09
3Q
20
09
4Q
20
09
1Q
20
10
2Q
20
10
3Q
20
10
4Q
20
10
1Q
20
11
2Q
20
11
3Q
20
11
4Q
20
11
*
JAKAGRI,
KO1 Comdty
Malaysian Palm
Oil Production
CPO Production JAKAGRI Index KO1 Commodity
Production Output Level similar
to 3Q & 4Q 2008
Source: Malaysia Palm Oil Board, Bloomberg
Price and Quantity DeterminantsPrice and Quantity Determinants
Changes
caused by:
Impact on
biofuelsImpact on Feedstocks 1
Price Quant.Biofuels use Non-bio use Total
Quant. Quant. Quant. Price
IncreasedIncreased
biofuels
mandate 2
Higher
energy prices
1. Market assumes one generic market for feedstocks, serving biofuels and nonbiofuel market
2. Biofuel price received by producer
Source: USDA
Ethanol Blending Tax Credit Ethanol Blending Tax Credit
� Feedstock used in biofuel production
must satisfy two profitability schemes:
profitability for planters and biodiesel
producers
� Among all the crops planted in US, corn
is the most profitable for producing
ethanol as you can see in graph 1.10
10
20
30
0
500
1000
1500
Corn Barley Sugarbeets Soybeans
OtherYield per
acreGraph 1.1 Yield per Acre
compared to Production Cost
ethanol as you can see in graph 1.1
� The 45-cents-per-gallon tax credit
available to blender of ethanol is
expiring at the end of 2011. A possibility
of renewal at a slighter credit.
� Decreased profit from producing corn as
feedstock for ethanol might make
growers in United States to switch from
growing corn to soybean.
Corn Barley Sugarbeets Soybeans
Production Cost Fuel Yield Yield per Acre
-
40.00
80.00
120.00
160.00
0.60
0.90
1.20
1.50
1.80
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
Mn HaratioGraph 1.2 Corn & Soybean Harvested
Area
Corn Soybeans Ratio Corn to Soybean
Source: USDA
Oil Universe Correlation Oil Universe Correlation
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
0
20
40
60
80
100
120
140
160
Jul-02 Oct-03 Jan-05 Apr-06 Jul-07 Oct-08 Jan-10 Apr-11
CPOCrude
Oil Crude Oil Vs CPO
CP
O
AA
LI
LSIP
UN
SP
TB
LA
GZ
CO
BW
PT
SG
RO
CPO 1.00
AALI 0.92 1.00
LSIP 0.91 0.96 1.00
Stock Price Correlation
Source: USDA, Bloomberg
Jul-02 Oct-03 Jan-05 Apr-06 Jul-07 Oct-08 Jan-10 Apr-11
Crude Light Oil CPO
200
400
600
800
1000
1200
1400
800.00
1,000.00
1,200.00
1,400.00
1,600.00
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11
CPOSoybean CPO against Soybean
Soybean CPO
UNSP 0.65 0.70 0.66 1.00
TBLA 0.88 0.86 0.88 0.73 1.00
GZCO 0.79 0.83 0.93 0.07 0.70 1.00
BWPT 0.94 0.40 0.96 -0.46 0.83 0.72 1.00
SGRO 0.91 0.91 0.92 0.60 0.84 0.83 0.86 1.00
There are four stocks in Indonesian plantation that
have high correlation with CPO price movement:
BWPT (0.94), AALI (0.92), LSIP (0.91), & SGRO (0.91)
Growth is My Middle Name Growth is My Middle Name
Market Cap
(IDR)
Unplanted
Area (Ha)
Planted
Area (Ha)
Matured Area
(Ha)CPO Prod.
CPO
Extraction
Rate
BWPT 529.74 Mn 41,704 56,476 19,663 86,031 22.9%
GZCO 144.73 Mn 90,747 33,147 21,428 43,096 22.08%
SGRO 681.27 Mn 26,336 105,411 78,518 271,924 21.6%
LSIP 1.77 Bn 30,000 99,386 85,563 199,447 23.2%
TBLA 329.29 Mn 49,496 51,584 39,966 180,147 22.0%
UNSP 456.41 Mn 80,000 106,257 78,630 235,861 20.0%
Growth is my middle name. Amidst future land
scarcity, moratorium law, intense scrutiny from
global organizations like WWO, there is a high
preference to plantation companies with ample
land banks for future new plantings. Supported
by our belief that palm oil consumption will
continue to amplify from emerging market
demand and most importantly from our own
domestic demand, plenty land bank begets
abundant FFB which then will begets our liquid
gold none other than CPO.
Age Profile (2015F) BWPT IJ GZCO IJ SGRO IJ TBLA IJ
Total Immature Area 29.3% 51.5% 25.6% 14.0%
Total Young Mature
Area
42.5% 25.4% 31.0% 13.9%
Total Prime Area 23.8% 18.0% 43.4% 35.7%
Total Older Area 4.4% 5.1% 0.0% 36.3%
Stocks Comparison Stocks Comparison
Market Cap
(IDR)
Rev – 1 Yr
Growth
Op. Income
– 1 Yr
Growth
EPS – 1 Yr
Growth ROE ROA PBV
BWPT 529.74 Mn 21.92% -5.41% 19.08% 23.95% 11.39% 3.65
GZCO 144.73 Mn 11.43% -21.48% -9.31% 14.35% 7.87% 1.06
SGRO 681.27 Mn 27.33% -15.40% 58.28% 23.18% 17.58% 2.59
LSIP 1.77 Bn 12.28% 57.83% 43.81% 24.70% 19.86% 2.97
TBLA 329.29 Mn 6.02% 66.23% -8.26% 23.12% 7.66% 1.79
UNSP 456.41 Mn 29.21% 35.48% 3.29% 14.66% 6.83% 0.46
Source: Bloomberg
-50.0%
0.0%
50.0%
100.0%
Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11
Stock Performance in FY2011
AALI IJ Equity BWPT IJ Equity GZCO IJ Equity
LSIP IJ Equity SGRO IJ Equity UNSP IJ Equity
TBLA IJ Equity
Stock performance in the plantation universe pretty
much mirrors each other in the FY2011 except for
TBLA. The reason being there is a jump in
revenue, gross profit, and net margin growth YoY-
wise and margins improvement all across the board
that gave a boost to TBLA’s earnings per share
making it one of the cheapest relative to peers price-
to-earnings wise in 1H 11.
BW Plantation (BWPT IJ) – Buy Target Price: IDR 1,310 (Upside +12.9%)
400.00
800.00
1,200.00
1,600.00
Oct-09 May-10 Nov-10 Jun-11 Dec-11
IDR BWPT IJ PE Band
Close PER 8 PER 10 PER 12 PER 16
Y/E December 2009 2010 2011F 2012F 2013F
Total sales 584.11 712.58 900.42 1305.03 1652.13
COGS 219.09 244.99 315.99 431.45 562.92
Gross profit 365.02 467.59 584.43 873.57 1089.20
SG&A expenses 106.18 96.18 118.89 183.92 243.05
EBITDA 337.65 474.77 598.23 858.28 1059.87
Operating Profit 258.84 371.40 465.54 689.65 846.15
Interest income 3.60 12.79 24.20 44.64 43.52
Forex gains
(loss)39.83 7.88 - - -
Pretax income 247.81 332.98 465.25 672.99 826.53
Financial Highlights
Income taxes 80.35 88.99 152.14 221.00 270.85
Net Income 167.47 243.99 313.11 451.99 555.68
Ratios
ROA(%) 10.3% 12.4% 13.3% 17.1% 17.3%
ROE (%) 18.5% 21.6% 22.5% 25.4% 24.7%
Gross margin 62.5% 65.6% 64.9% 66.9% 65.9%
Op. margin 44.3% 52.1% 51.7% 52.8% 51.2%
EBITDA margin 57.8% 66.6% 66.4% 65.8% 64.2%
Pretax margin 42.4% 46.7% 51.7% 51.6% 50.0%
Net margin 28.7% 34.2% 34.8% 34.6% 33.6%
-40.00%
0.00%
40.00%
80.00%
120.00%
160.00%
200.00%
Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11
BWPT IJ Performance against
benchmark
BWPT IJ JAKAGRI INDEX JCI INDEX
BW Plantation (BWPT IJ)BW Plantation (BWPT IJ)
Good to Great Good to Great
Aggressive New Plantings
In the midst of moratorium law and maturing palm plantation industry, BWPT is set for the nextyears 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 anaggressive policy of new plantings. A more established plantation with limited extra land bank willwant to wait before they regenerate old trees with the new ones and as a result they did not plantnew trees on such a big scale like BW Plantation did. Hacking down still producing trees albeit oldones is the same like plugging one of their cash flow, this is one of the main challenges that a moreestablished plantation with limited new land banks have. We believe this will benefit BWPT for theestablished plantation with limited new land banks have. We believe this will benefit BWPT for thenext years to come when other more established plantations are experiencing a declining yield perHa 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 economiesof scale for BWPT that are reflected in the improving gross margin averaging on the 60% level from apreviously a mere 29% gross margin for the year 2005. This is where we would like to applaud BWPTfor successfully integrating new technology for greater efficiency in their estates. The strategiclocation of their estates that are located in Kalimantan may have been one of their influencing keypoint why they can so easily integrate technology to their harvesting process. Human labor arescarcer for Kalimantan compared to Sumatra. Integrating technology to estates in Sumatra is muchmore difficult as the existing workers are resistant to changes fearing for their job security.
BW Plantation (BWPT IJ)BW Plantation (BWPT IJ)
Good to Great Good to Great -- cont’d cont’d
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 CallOur 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
Sampoerna Agro (SGRO IJ) – Buy
Target Price: IDR 3,300 (Upside +10.0%)Y/E December 2009 2010 2011F 2012F 2013F
Total sales 1815.56 2311.75 3159.63 2746.20 2912.20
COGS 1216.13 1469.12 1779.47 1304.95 1395.34
Gross profit 599.43 842.63 1380.17 1441.25 1516.86
SG&A expenses 139.39 186.85 315.18 194.65 214.90
EBITDA 538.94 762.34 1184.39 1377.03 1443.59
Operating Profit 460.04 655.79 1064.99 1246.60 1301.96
Interest income 23.48 12.54 48.30 55.70 55.16
Forex gain (loss)(20.28) 1.14 - - -
Pretax income 409.40 630.49 1083.05 1274.73 1332.21
Financial Highlights
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11
SGRO IJ PE Band
Close PER 6 PER 8 PER 12 PER 16
Income taxes 123.13 173.16 317.18 371.68 387.38
Net Income 281.81 451.73 755.00 889.11 931.24
Ratios
ROA(%) 12.8% 17.6% 23.9% 23.7% 21.1%
ROE (%) 17.0% 23.2% 31.0% 28.8% 24.4%
Gross margin 33.0% 36.4% 43.7% 52.5% 52.1%
Op. margin 25.3% 28.4% 33.7% 45.4% 44.7%
EBITDA margin 29.7% 33.0% 37.5% 50.1% 49.6%
Pretax margin 22.5% 27.3% 34.3% 46.4% 45.7%
Net margin 15.5% 19.5% 23.9% 32.4% 32.0%
-100%
-50%
0%
50%
100%
150%
Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11
SGRO IJ Performance against
benchmark
SGRO IJ JAKAGRI Index JCI Index
SampoernaSampoerna Agro Plantation (SGRO IJ)Agro Plantation (SGRO IJ)
Slow but Steady Wins the Race Slow but Steady Wins the Race
Stabilizing FFB Production
SGRO used to be known with erratic productions that made quite challenging to nail a forecast for
their FFB productions; not the case lately. Their usual propensity of very sharp drop in FFB
production in the first quarter of the year had been curtailed to 20% drop from a previously 41 –
69% plunge. 2011 has never been a better year for SGRO where both of their nucleus and plasma
production stabilized and improved in the midst of escalating CPO prices. Double multiplier at works
for their top line. Especially seen in 1Q 2011 where their gross margin was a whooping 44%
compared to the usual 36 – 38% gross margin they recorded the previous year.compared to the usual 36 – 38% gross margin they recorded the previous year.
Strong Cash Position
SGRO has strong cash position which is only getting stronger by the year, in fact they had been in the
position of net cash instead of net debt since the year of 2007 onward. New planting will boost
production in future years but the company has to have a strong cash flow for the next seven years
as production will be nil for the first four years and the next three initial productive years will not be
as profitable and productive relative to a more mature trees. SGRO fulfilled the two conditions
important for new plantings – ample land banks and strong cash flow to maintain the new planting
areas. One of the main cost component of palm plantation is the fertilizer cost which is essential
during the immature phase.
SampoernaSampoerna Agro Plantation (SGRO IJ)Agro Plantation (SGRO IJ)
Slow but Steady Wins the Race Slow but Steady Wins the Race –– cont’d cont’d
Building Block of Improving Plasma Production – Good Socialization
Plasma production had been the wild card in palm plantation industry for 80% of the time. But SGRO
proved otherwise with their plasma productions. While others have problem on socializing the
importance of fertilizer for the realized output later on, SGRO doesn’t. The fact of the matter is their
Sumatra’s mature plasma plantation area making up about 63.9% of their total mature area has been
recording better than ever FFB output. This is no trivial undertaking where you have to convince
farmers with limited education to forgo their immediate needs for future revenues.
Our CallOur Call
Stabilizing production, net cash position, and good estate management made SGRO a buy in our
estimation. We are recommending a buy for SGRO with target price of IDR 3,300 (upside of 10%)
reflecting a 2012 PE of 7.01; a bargain in terms of peer comparison and their historical valuation.
Tunas Baru Lampung (TBLA IJ) – Buy
Target Price: IDR 680 (Upside +13.3%)Y/E December 2009 2010 2011F 2012F 2013F
Total sales 2783.57 2951.11 3977.82 3545.52 3780.86
COGS 2336.34 2310.10 2784.48 2628.63 2724.85
Gross profit 447.24 641.01 1193.35 916.89 1056.00
SG&A expenses 165.77 291.41 378.16 340.24 355.93
EBITDA 389.80 474.15 987.02 781.93 937.95
Operating Profit 281.47 349.60 815.18 576.65 700.07
Interest income 9.04 2.06 20.87 37.48 34.08
Forex gain (loss)20.33 57.96 - - -
Pretax income 208.35 324.38 734.20 474.88 606.00
Financial Highlights
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
900.00
Oct-06 Aug-07 Jul-08 May-09 Apr-10 Feb-11 Jan-12
IDR TBLA IJ PE Band
Close PER 6 PER 8 PER 10 PER 12
Income taxes 69.35 76.24 233.64 135.70 172.39
Net Income 138.24 246.66 498.13 337.28 430.89
Ratios
ROA(%) 4.9% 7.7% 12.9% 7.8% 9.1%
ROE (%) 15.5% 23.1% 34.2% 19.0% 21.2%
Gross margin 16.1% 21.7% 30.0% 25.9% 27.9%
Op. margin 10.1% 11.8% 20.5% 16.3% 18.5%
EBITDA margin 14.0% 16.1% 24.8% 22.1% 24.8%
Pretax margin 7.5% 11.0% 18.5% 13.4% 16.0%
Net margin 5.0% 8.4% 12.5% 9.5% 11.4%
-200.0%
0.0%
200.0%
400.0%
600.0%
800.0%
1000.0%
1200.0%
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
TBLA IJ Performance against
benchmark
TBLA IJ JAKAGRI Index JCI Index
Tunas Tunas BaruBaru Lampung (TBLA IJ)Lampung (TBLA IJ)
Margin Margin –– Little Thing that Makes Big DifferenceLittle Thing that Makes Big Difference
Margin ImprovementsIf there is a saying it’s the little thing that makes a big difference, it certainly is for TBLA. Sterlingfinancial performance might come from elevated CPO price and improved production over the yearthat has CAGR of 3.9% for the last five years that boosted their revenue figure but marginimprovements can be seen throughout 2011. Revenue for TBLA was highest in 9M 2008 recorded atIDR 3.1 billion but the gross margin, operating margin and net margin during the period was only23%, 11%, and 9% respectively. Compared to 9M 2011 revenue at IDR 2.9 billion or 5.4% less thanrevenue recorded at 9M 2008, margins are very much improved across the board. 35%, 17%, and12% for gross, operating and net income margins respectively. Most of the improvements were dueto decreased third party purchase of FFB that only can be achieved by increased nucleus production.to decreased third party purchase of FFB that only can be achieved by increased nucleus production.
Full Integrated Operation – From Upstream to DownstreamIn the tax friendly climate for CPO downstream products, TBLA is in the sweet spot of marginexpansion since about half of the revenue generated comes from products like olein, PFAD, andstearine. In tax bracket graph included in the next page, it’s easy to see that other than themanufacturing margin, TBLA also enjoyed tax margin from the incentives introduced by thegovernment. Other than that, TBLA has an established distribution channel like 21 marketing salesoffices and more than 48,000 outlets throughout Indonesia. With downstream products, brand isgoing to be a key driver of sales, we believe TBLA had already produced a recognized brand in themarket.
Tunas Tunas BaruBaru Lampung (TBLA IJ)Lampung (TBLA IJ)
Margin Margin –– Little Thing that Makes Big DifferenceLittle Thing that Makes Big Difference
128-PMK.011-2011 > 750 –
800
>800 –
850
>850 –
900
>900 –
950
>950 –
1,000
>1,000
– 1,050
> 1,050
– 1,100
>1,100 -
1,150
>1,150
– 1,200
Crude Palm Oil 7.50 9.00 10.50 12.00 13.50 15.00 16.50 18.00 19.50
Crude Palm Kernel Oil 7.50 9.00 10.50 12.00 13.50 15.00 16.50 18.00 19.50
Crude Palm Stearin 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.50 12.00
Palm Fatty Acid
Our CallFully integrated company with proven track record, fattening margins, and profits from tax-friendly
environment make TBLA a buy in our view with target price IDR 680 or an upside of 13.8% from
current price reflecting PE 2012 of 9.55.
Palm Fatty Acid
Distillate (PFAD)3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.50 12.00
Gozco Plantations (GZCO IJ) – Hold
Target Price: IDR 335 (Upside +26.4%)Y/E December 2009 2010 2011F 2012F 2013F
Total sales 407.90 454.52 473.80 565.62 684.31
COGS 260.96 262.06 301.83 373.70 466.31
Gross profit 146.94 192.47 171.97 191.92 218.00
SG&A expenses 25.46 41.49 48.83 35.71 43.13
EBITDA 185.73 221.30 199.83 238.94 271.51
Operating Profit 121.48 150.97 123.14 156.21 174.86
Pretax income 203.13 190.09 181.75 210.68 232.77
Income taxes 30.77 28.45 37.00 35.34 39.13
Net Income 204.45 160.80 145.73 177.54 196.08
Dividend Paid 16.25 60.00 48.77 62.83 67.51
Financial Highlights
-
100.00
200.00
300.00
400.00
500.00
May-08 Nov-08 Jun-09 Dec-09 Jul-10 Jan-11
IDR GZCO IJ PE Band
Close PER 4 PER 6 PER 8 PER 10Dividend Paid 16.25 60.00 48.77 62.83 67.51
Ratios
ROA(%) 10.3% 7.7% 6.9% 7.9% 8.1%
ROE (%) 19.1% 13.7% 11.5% 12.8% 13.0%
Gross margin 36.0% 42.3% 36.3% 33.9% 31.9%
Op. margin 29.8% 33.2% 26.0% 27.6% 25.6%
EBITDA margin 45.5% 48.7% 42.2% 42.2% 39.7%
Pretax margin 49.8% 41.8% 38.4% 37.2% 34.0%
Net margin 50.1% 35.4% 30.8% 31.4% 28.7%
Dividend payout 7.9% 37.3% 33.5% 35.4% 34.4%
Current ratio 2.85 1.64 2.50 3.21 3.32
Close PER 4 PER 6 PER 8 PER 10
-100.0%
-50.0%
0.0%
50.0%
100.0%
150.0%
May-08 Feb-09 Nov-09 Aug-10 May-11
GZCO IJ Performance against
benchmark
GZCO IJ JAKAGRI Index JCI Index
GozcoGozco Plantations (GZCO IJ)Plantations (GZCO IJ)
A Prospective Growth CompanyA Prospective Growth Company
Land Banks Under the BeltLeft and right we are seeing plantations scrambling to acquire land to add on to their current landbanks. In the midst of moratorium law and intense scrutiny from organization like WWO will escalatethe fight for lands. Current land banks for GZCO relative to other much more established company isplenty enough to avoid any road bumps in the future resulting from the scarcer and scarcer landsand or difficult land clearing regulations that will hinder new plantings for future production growth.
Bottom Line BoosterGains from associate company or in this case Indotruba had pretty much improved the bottom linefor GZCO for the last consecutive quarters. The other booster comes from utilization of idle capacityfor GZCO for the last consecutive quarters. The other booster comes from utilization of idle capacityfrom the new mill. Even if margin from manufacturing third party FFB instead of own nucleus FFB issmaller nevertheless it’s a relevant strategy adopted by GZCO to boost their bottom line.
Cost Efficiency will Fatten Up MarginsGains from associate company and manufacturing margin from third party purchases is not enoughto make GZCO looks attractive in the income statement. However we believe if GZCO can introducecost efficiencies to any of their operating costs, it makes a big difference. With costefficiencies, comes fatter margins, with fatter margins give off decent net income.
Our CallGZCO is still a Hold with target price IDR 335 or 26.4% upside in our view from a growth stockperspective. Ample land banks for future new plantings in a land-rarity environment, inorganicgrowth from associate company namely Indotruba and manufacturing profit that nonetheless is stillyielding out profits to be enjoyed by GZCO.
Bakrie Sumatera Plantation (UNSP - IJ) Under Review
Y/E December 2009 2010 YoY 9M 10 9M 11 YoY
Total sales 2,325 3,004 29% 1,896 3,343 76%
Gross profit 672 1,292 92% 783 1,236 58%
Operating profit 470 850 81% 568 828 46%
EBITDA 598 1,153 93% 754 1,016 35%
Net Income 253 806 218% 215 713 232%
Margins
Gross Margin 29% 43% 41% 37%
Operating
Margin20% 28% 30% 25%
Financial Highlights
-
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
Feb-05 Jul-06 Nov-07 Mar-09 Aug-10
IDR UNSP IJ PE Band
Close PER 6 PER 12 PER 18 PER 24
EBITDA Margin 26% 38% 40% 30%
Net Margin 11% 27% 11% 21%
Total Assets 5,072 18,502 265% 15,063 18,686 24%
Cash & equiv. 194 935 382% 976 580 -41%
Plantations & FA 2,219 10,549 375% 6,399 10,584 65%
Other assets 2,659 7,018 164% 7,688 7,522 -2%
Debt 1,744 8,227 372% 5,623 7,977 49%
Other Liabilities 658 1,957 198% 1,490 1,841 24%
Equity 2,670 8,318 212% 7,950 8,867 12%
0.0%
200.0%
400.0%
600.0%
800.0%
1000.0%
1200.0%
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
UNSP IJ Performance against
benchmark
UNSP IJ JAKAGRI Index JCI Index
Bakrie Sumatra Plantation (UNSP IJ)Bakrie Sumatra Plantation (UNSP IJ)
at a glance at a glance
A Fully Integrated Plantation CompanyBakrie Sumatera Plantations (UNSP.JK) currently managing more than 125,000Ha planted area andoperates 12 factories with combined capacity of 715,000MT per annum producing a combination ofupstream 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 conducivetoward the downstream players, we believe that UNSP will be one of the beneficiaries trough its fullintegrated Oil Palm business. On top of it, UNSP has the opportunity to capture strategic synergyfrom the upstream production to the value-added manufacturing of downstream derivatives.
9m 11 Improving Operational Performance9m 11 Improving Operational PerformanceFor 9M 11 UNSP recorded 34% and 31% increased respectively for CPO and PK productions. Thedevelopments can be traced back to better fertilizer applications and advancement in UNSP’s ageprofile resulting in higher FFB yield per ha reaching 16t/Ha (annualized). We believe this positivetrend to continue next year and expect FFB yield to gradually narrow the gap with industry average.
Growing Product Portfolio – Oleo chemicals added to the mixWe believe Asian demand for oleo products will continue to grow approximately at 5%-7% perannum. Oleochemicals industry gives an estimated 40% value-added boost to the value of CPO andPKO. On top of the 15% gross manufacturing margin, Oleochemicals can also boost up earnings bysaving on the tax incentives. CPO and PKO are under progressive tax policy with benchmark priceabove US$1250 taxed at the 22.5% tax bracket while refinery products with benchmark price aboveUS$1250 is taxed between 10%-15% and no tax for Fatty Alcohol products.
Bakrie Sumatra Plantation (UNSP IJ)Bakrie Sumatra Plantation (UNSP IJ)
at a glance at a glance -- continuedcontinued
The Largest Rubber-Exposed Listed PlantationUNSP 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 thananother company with rubber exposure in the industry. Rubber sales contributed about 26.7% oftotal sales for UNSP; second key revenue generator after palm oil in their sales breakdown. By beingthe largest rubber-exposed listed plantation in terms of planted area and production, UNSP does notmiss the boat like some others do. Please note that average selling price for 9M 11 of rubber is USD4,727/MT or a 61% increase from USD 2,932/MT.
UNSP Offers Attractive ValuationsUNSP Offers Attractive ValuationsUNSP is valued at a discount compared to peers currently in terms of revenue growth, price-to-book, and price to earnings ratio. The compounded annual rate growth for Bakrie SumateraPlantation for the last five years is 20.5% and its one-year revenue growth according to Bloomberg is29.21% beating the industry average of 16.01% by quite a significant margin of 13.20%. Earning isunder pressure because of the high gearing as they incurred additional debts in the process ofacquiring smaller plantations and Oleochemicals assets in particular. Remembering that land banksare getting few and far in recent years and the growing demands of oleo chemical products in futureyears, recent acquisitions of debt-ridden plantations and Oleochemicals may present a positivesurprise for UNSP in the future. Considering that UNSP’s price-to-book ratio is valued at 0.44compared to the 2.28 industry’s average PB ratio, we believe that UNSP is somewhat attractive evenwith the highest gearing across the plantation industry.
Indonesian Plantation Rundown
Upside Chance in Indonesian Palm Oil:
� Relative cheaper valuation than Malaysian palm oil
� Tax incentives for downstream products giving Indonesia an edge over Malaysia’s
downstream product
� Bio-diesel mandate that will put a brake on declining vegetable oil demand from
slowing Europe and US economy.
� Emerging market demand for vegetable oil
Downside Risk in Indonesian Palm Oil:
� Global economy slow down spreading to otherwise resilient BRIC countries
� Resulting in lower consumption of vegetable oil
� A pause in bio-diesel tax incentives or mandates by more developed countries
Stock selection continue to be the lines of approach in Indonesian plantation sector.
Growth and cheap valuation relative to peers and relative to their historical trading
valuation will be the distinguishing factor in 2012.
Prepared by: Linda Lauwira