Kim Eng London Sumatra: CPO sales volume rose 6% , but production lower

London Sumatra: CPO sales volume rose 6% , but production lower

Management released operation data for FY08, as follows:
Sales volume for CPO increased by 6% to 353.8k tons, while that of kernel was up by 7% to 76.3k tons.
We'd like to note that sales volume of rubber fell sharply to 22.87k tons or down 27% YoY compared to 31.4k tons in FY07.
FFB production was actually drop by 3.6% to 1,481k tons, both from nucleus (down 4.2%%) and from plasma (down 2.2%).
Despite increase of 8.2% to 24.1k tons, FFB purchase from third party still remains minor, only 1.6% of total FFB processed.
CPO production was 341.5k tons or down 2.6% YY
Rubber production was down 25% YoY to 23.44 k tons.

Comment:
With extraction rate remained stable at 23.5% for CPO, we suspects higher CPO sales volume came from inventory.
Overall, production of FFB, CPO and rubber is below our expectation.
We reckon that London Sumatra has higher production cost compared to Astra Agro Lestari.
For comparison, Lonsum's gross and operating margins in 9M8 were 41.1% and 38.9%, meanwhile those of Astra were 50.9% and 46.4%.
We are reviewing our forecast and recommendation