CLSA Research Today: Bakrie Sumatra (UNSP IJ)

Research Today: Bakrie Sumatra (UNSP IJ)

Our analyst Wilianto has prepared a note on Bakrie Plantations (UNSP IJ). Using our US$300/t CPO price (current price US$550) and US$1,500/t rubber price (current spot price is US$1,500) assumptions, UNSP is going to lose money this year.

This is mainly due to high leverage structure at UNSP’s balance sheet. EBIT and EBITDA are still positive. Total consolidated gross debt is Rp1.6tn (US$135mn) in 9M08, out of which the company has US$ debt of US$110mn, paying 10.75% p.a. interest rate. And there is another Rp1.6tn debt in its unconsolidated 51% owned Agri Resources. Market cap is currently US$98mn.

There are good interest in CPO names lately. We believe that the stocks to play on a CPO price rebound in Indonesia would be Astro Agro (AALI IJ) and London Sumatra (LSIP IJ).

UNSP sensitivity to palm oil and rubber prices is is high:
Every US$50/tonne change in CPO price moves earnings by Rp64bn
Every US$100/tonne change in rubber price moves earnings by Rp17bn.
Rubber accounts 37% of profit in 9M08‚ with the remainder coming from palm oil.

UNSP’s view is that pricing for Palm Oil has bottomed. Why? (1) Palm Oil is trading at a discount to soybean oil (2) they are entering the seasonal lows in terms of production.

UNSP’s view on rubber is more negative as the auto world is the biggest customer and rubber pricing is correlated to crude oil. Obviously neither is good right now for rubber.