Sampoerna Agro (SGRO)’s FY08 net profit was below consensus estimate but in line with ours. During 2008, SGRO achieved better yield and extraction rate, translating into an 8.0% increase in CPO production to 265k tons. In FY09F, we expect SGRO to have the highest CPO production growth among its peers (7.2% vs average peers of 5.9%). Additionally, SGRO managed to reach bett er gross margin (FY08: 33.8%, FY07: 30.9%) despite sharp increase in fertilizer prices due to support from the plasma component. We reiterate our Buy call with TP upgraded at Rp1,600/share. The stock currently trades at PER09F of 8.7x.
FY08’s earnings in line with ours, but below consensus. With CPO production volume peaking in 4Q08, total production volume in FY08 increased by 8.0% yoy to 265k tons. CPO sales volume surged even higher to 287k tons (+31.0% yoy) which resulted in 43.1% revenue growth to Rp2.3tn in FY08. Bottom-line wise, the company reported FY08 earnings of Rp440bn (+104.3% yoy), 4Q dropped by 37.0% qoq as expected earlier due to lower CPO prices. FY08 net income was in line with our expectations, but 9.4% belo w consensus estimates.
Production cost increase came in below local peers. As of FY08, cost per kg CPO was up by 23.9% to Rp4,800/kg, while its local peers experienced larger increase of 43.5% on average. In spite of high fertilizer cost during 2008, SGRO’s earnings were more resilient to changes in CPO price given support from the plasma component. The cost of fruit purchased from plasma plantations declined with lower CPO prices. Consequently, the company managed to report better gross margin of 33.8% in FY08, up from 30.9% the previous year.
New palm plantings of around 8k ha. Despite its net cash position of Rp426bn (net gearing -27.4%), the company still chose to conserve cash due to current tight liquidity in the financial market. Hence, SGRO indicated only around 8k ha new palm plantings for FY09F, but could be increased to more than 10k ha should market conditions improve. Assuming conservative new plantings of 8k ha, we expect SGRO’s CPO production to reach 285k tons (+7.2% yoy) in FY09F. This CPO production growth figure is higher than its average peers of 5.9%.
Retain Buy rating. We like the stock for its potential CPO production growth and less exposure to foreign denominated debt. We have revised up our earnings estimates by 4.4% and 3.5% in FY09F-10F due to weaker exchange rate assumption (exhibit 2). Maintain Buy at TP upgraded to Rp1,600/share (DCF, WACC: 13.6%, TG: 5.0%).
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