DBS LSIP Better than expected 4Q08 results

Comment on Results
London Sumatra (Lonsum) FY08 net profit increased 64.5% y-o-y to Rp927.6b. This was 15% above our forecasts due to 11% higher-than-expected operating profit, Rp30.0b FX gains (we had anticipated Rp55.1b FX losses), and higher interest income due to
higher cash balance.

Higher-than-expected realized ASP in 4Q08 explained the group’s better-than-expected performance. Despite the 43% q-o-q drop in CPO spot prices and 33% q-o-q rise in CPO sales volumes, Lonsum’s managed to book 7% increase q-o-q revenues to Rp983.4b (after adjusting for the c. Rp128.8b reclassification of exports tax, freight and insurance costs due to the realignment of accounting policy with SIMP). Lonsum’s costs of goods sold, on the other hand, dropped by 44.1% q-o-q to Rp299.7b in 4Q08, as indirect costs were taken out and are now charged under the general and administration expenses (no impact to bottom-line).

Bear in mind that as previously announced, Lonsum had expensed approximately Rp98.6b of previously capitalized overhead charges arising from accounting harmonization with its parent company, which we had already taken into account. As at end of last year, Lonsum had a net cash position with Rp1,034.3b cash balance as at end of FY08, while its operating cash flow netted Rp1,123.9b for the full year.

Recommendation
Despite the better-than-expected FY08 results, we maintain our forecast for this year, as we continue to expect the group to achieve Rp5,945/kg average CPO selling price and 9.8% y-o-y growth CPO selling volume. We maintain our Hold call with TP of
Rp3,450/share.