LSIP was one of the largest CPO players that booked remarkable 2009 earnings result in 2009 which 5% above consensus expectation. Operational improvement has been taking place since occupied by new management. Management keeps augementing logistic in South Sumatra and plasma’s output. And the completion of Pahu Makmur mill in East Kalimantan would improve the operating margin. On EV/planted area, LSIP has started to price premiumly which is 4% higher than AALI. We still prefer LSIP due to its better plantation profile and its potential future growth considering its large unplanted landbank.
± Above Expectation
Revenue decreased 16.8% YoY to Rp 3,199 bn and operating profit decreased 23% YoY to Rp 1,018 bn. Net income decreased 23.7% YoY to Rp 707.5 bn. Amid market crisis with lower ASP that dropped 14% YoY to Rp 6.4k/kg, operational improvement made company could maintain the operating margin only slightly decreased to 32%
± Enhancement on Future Expansion & Productivity
Restructuring made by new management have successfully enhance the capital structure of the company where the debt –equity ratio per 2009 dropped to 0.2x from 0.64x in 2008 and gearing ratio dropped to 0.06x compared to 2008 at 0.3x. Total capex needed for the next 3 years would take around Rp 900 bn – 1 tr capex to maintain 5 – 6% annual growth on CPO production, where company would face no difficulties on financing.
± Higher TP - Maintain HOLD
Based on our key assumptions adjustment and rolling over our base year valuation towards 2011 in order to capture future market sentiment and expectation, we come up with higher TP at Rp 10,300 implying 15.6x – 13.7x P/E 2010F – 2011F and 9x – 8x EV/EBITDA 2010F – 2011F. Currently LSIP has been traded at 13.9x – 11.8x P/E 2010F and 2011F which looks not deeply discounted anymore and market starting to price in. Our new TP only offers 12% potential upside. We downgrade our recommendation from BUY to HOLD.
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