DBS Sampoerna Agro: Buy; Rp2,650; TP Rp3,300; SGRO IJ

4Q09 results in line with expectations
At a Glance
• 4Q09 net profit of Rp77.6b (-28.8% q-o-q), inline with expectations
• Weak net profit mainly due to flat revenue growth and higher COGS
• No change in forecasts. BUY call reiterated.
Comment on Results

Sampoerna Agro (SGRO) 4Q09 net profit came in line within our expectations at Rp77.6b, (-28.8% q-o-q; +94.2% y-o-y). The q-o-q lower net profit translated down from 22.3% q-o-q drop in gross profit, on account of flat revenue growth (+0.6% q-o-q) and higher COGS (+13.0% q-o-q). 4Q09 operating profit of Rp125.9b (-32.2% q-o-q) was, nevertheless, slightly ahead of expectations, as revenues were 3% higher than forecast – offsetting a 33.3% q-o-q jump in 4Q09 operating expenses (due to higher-than-expected salaries).

For full year, net profit dropped by 35.9% y-o-y to Rp281.8b, translated down from a 20.7% y-o-y drop in revenues, given lower CPO prices. The group has yet to reveal full year production volumes, most likely to exceed our expectations as drop in 4Q09 volumes may not be as severe as anticipated.
The group remains in net cash position with ending balance of Rp387.3b, from Rp304.7b in 3Q09. Its cash conversion cycle also improved to 11 days (from 25 days in 3Q09), mostly accounting for lower inventory days (i.e. to 41 days from 64 days in 3Q09) as a result of post Eid festival sales deliveries.

Recommendation
We are maintaining our forecasts, Buy call, and Rp3,300 TP (based on DCF; WACC: 15.4%; Rf. 9.5%; B:1.23, TG: 3%). SGRO remains our top-pick for Indonesian plantation stocks, underpinned by its strong growth potential going forward. We expect 1Q10 production to be seasonally lower than 4Q09, before rebounding in 2Q onwards.