Two small cap ideas for today:
Gozco (GZCO IJ) is on the way to five fold its plantation estates and there is strong reason to believe Gozco will offer at least 75% upside.
Wilianto upgrades to BUY with a 350 target price (fr buy w/ 275 tp). Post-acquisition of additional plantations the analyst has raised earnings by 70% in 2010 and 55% in 2011.
Value enhancing acquisition. The newly acquired Palma has yielded profit well above expectation, adding Rp32bn to GZCO’s profit and accounts for 58% of GZCO consolidated profit in 3Q09.
GZCO acquired this asset cheaply, paying US$4,500-5,000/ha, creating value/earning accretive. Palma has 6,600ha mature CPO estate compared to GZCO’s 7,500 ha mature estate prior to Palma acquisition. GZCO has 50% interest in Palma, so this translates into 3,300ha or 44% of GZCO’s mature estate.
This has prompted us to raised forecast aggressively (+70% to Rp194bn in 2010 and by 55% to Rp218bn in 2011) to reflect the strong contribution of Palma.
Road to fivefold the estate size. Rapid expansion is underway with the vast unplanted land bank of Palma (88k ha vs. 16k ha of GZCO’s planted areas in Dec08) enough to fivefold the size of GZCO once all planted.
Large funding is required to carry out the rapid expansion and we expect GZCO to fund it through both debt and equity, allowing it to become one of the fastest growing plantation companies.
GZCO is cheap at PE 5.2x 10CL and EV/planted hectare of US$6,400, a deep 65% discount to Astra Agro (AALI IJ - Rp21,500 - O-PF).
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