CLSA INDO: Lonsum: 1Q09 = 20% of FY09CL due to weak commodity prices. The weak result is expected.

Lonsum (LSIP IJ - Rp4,575 - BUY), a palm oil plantation, reported net profit of Rp103bn which is 19% of our FY09 forecast. The weak profit in 1Q09 is widely expected given underlying palm oil and rubber price has fallen significantly from last year high.

All its business units (palm oil, rubber, and seed garden) show a sharp yoy decline in profitability due to low underlying commodity price. Worse hit was rubber and seed garden that combined account for 26% of its operating profit in 1Q08, but only contribute 8% to profit in 1Q09.

In addition, production volume is also hit by tree stress and FFB harvest (nucleus) declined 11% qoq and flat yoy. CPO production dropped 19% qoq and 9% yoy as Lonsum purchased less FFB from its plasma and 3rd parties (partly reflects poor harvest of plasma and partly due to plasma selling their fruit to independent CPO mills in search for higher price).

Note that sales and therefore profit contribution from its seed garden has declined significantly in the past two quarters as plantation companies put a hold on expansion. Seedling used to account for around 15% of profit and now only accounts for 6% of profit in 1Q09.