CLSA London Sumatera (LSIP IJ) FY08 results better than expected

London Sumatera (LSIP IJ) FY08 results better than expected by Wili

London Sumatera (LSIP IJ) reported net profit of Rp928bn and Ebit of Rp1.31tn, which is 13% and 11% better than our forecast and 5% above market consensus.

· The net profit of Rp928bn in FY08 is 64% higher than FY07, driven by higher underlying CPO and rubber price. But earnings momentum has fallen sharply in 4Q08 inline with the decline in palm oil and rubber price.
· We expect 4Q08 earnings will mark the bottom of earnings cycle as palm oil price has started to recover from the low in Dec08.
· Palm oil production was relatively flat at 341k tons (-2.6% yoy) but sales volume was up 6.3% to 354k tons as it reduced inventory.
· Rubber production down 25% to 23.4k tons as production in its estates decline and Lonsum also reduce buying raw rubber from 3rd parties in its rubber processing plant.
· Lonsum generates 75% of its profit from palm oil, 12% from seed garden (palm oil), and the remaining from rubber.
· Note that there is a shift in some of its costs from Cogs to operating expense that boost gross profit (as well as operating expenses), but Ebit level remain unaffected.
· We are currently reviewing our CPO price assumption and recommendation.