Maintain Buy with Rp29,210 target price — Although strong soybean harvest prospects in South America may have a dampening effect on CPO prices nearterm, we don’t expect a substantial deterioration in CPO prices. Firm oil prices and healthy demand from key consuming countries should provide support and keep CPO prices range-bound within the US$720-760 level. We maintain our Buy rating on the stock with a Rp29,210 target price.
FFB harvest in line with historical trends — March FFB harvest rose 24.9% MoM to 300.5k tons. This generally reflects historical trends over the past five years where FFB harvest typically would decline first in Feb (-1.3% to - 16.5%) before picking up again in March (+6.9% to +17.2%). On a YTD basis, FFB harvest is down 5.1% YoY to 841.9k tons on the back of a) replanting efforts for some of its older trees in Sumatra and b) previous fertilizer usage cuts amongst plasma farmers.
CPO production: Higher OER is key —Despite 8.6% lower FFB processed to 919.6k tons, OER is higher at 23.79% (vs. 3M09’s 22.47%). As such, overall CPO production was only 3.2% YoY lower to 218.8k tons and accounts for 19.6% of our FY10E CPO production of 1.1m tons. 1H is typically weaker than 2H.
Higher CPO prices compensate lower sales volume — AALI’s YTD March CPO ASP rose 19.1% YoY to Rp6,544/kg and should more than compensate the marginal 1.2% decline in CPO sales volume to 223.3k tons (+0.4% MoM to 66.3k tons)
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