What’s New
For FY09, Sampoerna Agro (SA) posted Rp282b net profit that was below‐than‐expected (‐36% y/y), due to a higher than anticipated forex loss and lower‐than‐expected interest income. Sales declined by 21% y/y to Rp1,816b as the ASP of CPO dropped by 9.2% y/y and the sales volume fell by 8.3% y/y.
The company has signed an agreement to acquire 75.5% of PT National Sago Prima, a sago palm plantation in Riau, for US$6.5m. Moreover, it plans to inject further sum of Rp55b (US$5.8m) to raise its stake to 91.85%. It is a risky investment given the company’s lack of experience in the field. At the current price, there is limited upside; thus, we recommend HOLD.
Our View
Our main concern is the production shortfall of 2% of FFB in FY09, which goes against the trend of production growth rates (ranging from 3% to 36% y/y) of the sector. We now expect its FY10 production of FFB from plasma to grow by only 2% y/y and its total CPO to be 275k tonnes (9% lower than our initial assumption).
We are not enthusiastic about the management’s foray into the sago business, which we think is quite risky. We understand that unlike other tropical crops, there have been minimum R&D activities on sago. Hence, the company may have to incur high learning costs in development of the business. With planted area of 8k ha, the sago
estate is valued at par with the valuation of its palm oil at US$10.4k/ha.
Action & Recommendation
SA’s share price has been lagging, with the stock losing by 4% YTD (vs. agri index that shows an increase of 11%). This reflects the production volatility and the lack of volume growth of its CPO. After adjusting for its decreased CPO production and cutting our FY10 net profit estimate by 15% to Rp336b, we lower our TP to Rp2,675 and recommend HOLD.
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