CLSA 1Q09 results: Sampoerna Agro (SGRO I)

Sampoerna Agro (SGRO IJ) reported a weak result with net profit of Rp13bn which is only 6% of our full year forecast and market consensus. Although weak 1Q09 is largely expected, the sharp fall in production volume (FFB harvest from inti -70% yoy) has amplified the weakness.

South Sumatera was hurt by low crops season in 1Q09 that caused the 70% yoy fall in FFB production of Sampoerna Agro as 82% of its mature estates are located in South Sumatera.

Low harvest means production costs per ton is higher given production costs per hectare is relatively fixed. Production cost per ton FFB of Sampoerna Agro has increased from Rp657/kg in 2008 to more than Rp1,000/kg in 1Q09. This despite the facts that Sampoerna Agro FFB production costs in 1Q09 is 33% lower than last year at Rp42bn (largely due to lower upkeep and harvest costs).

Management expect harvest to pick up strongly in 2H09, following the pattern in 2005 and 2007 where first quarter harvest only accounts for 11%-12% of full year production. The chart below shows that production pattern of Sampoerna Agro could be very volatile.

lent Rp111bn (US$9.2m) to PT Siak Raya Timber that is claimed to be non related parties. We believe this is part of the process of Sampoerna Agro intention to diversify into sago palm plantation and processing facilities in Riau, Sumatera where Siak Raya Timber is located.