SGRO IJ (@Rp2,425- 12.0x 2010F PER) remains the cheapest CPO stock in CS Indonesia Plantation stocks traded at IDX, while 2nd Cheapest after IFAR SP (@SGD1.80- 11.2x 2010F PER). We continue to recommend Small-Cap Buy for SGRO!
· Teddy Oetomo (Daily): SGRO’s 3Q09A CPO output jumped by 63% QoQ and 104% YoY. Indeed, in 3Q09A alone, SGRO produced 94,744 tons of CPO, 11.3% higher than the total CPO produced in the whole 1H09A. We had previously highlighted our expectations for strong 3Q09 production for SGRO. We noted the risk that the market had not adequately accounted for the 3Q09 bumper crop and thus underestimated SGRO’s production numbers and earnings, leading SGRO to trade at a discount to its local peers. As such, our 2009E earnings are 34% above consensus.
· SGRO continues to trade at a discount to its local and regional peers. Indeed, SGRO trades at the second lowest 2010E P/E among all the CPO counters under our coverage. We maintain our OUTPERFORM rating on the counter and target price of Rp2600/share (based on 13x 10E P/E) for now, while awaiting its 3Q09 results (to be announced at the end of October 2009). However, at current valuations, we prefer IFAR to SGRO and LSIP.
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