* 1Q10 net earnings within expectation
* CPO sales volume fell 14% y-o-y, but the impact was offset by higher ASP and rubber and seed volumes
* Hold rating and TP maintained.
Comment on Result
London Sumatra (LSIP) booked 1QFY10 revenue and net profit of Rp680.2b (+10% y-o-y) and Rp167.9b (-63% y-o-y), respectively, including Rp11.9b translational FX loss (arising from the group's US$91.9m cash holding). These represent 19% and 20% of our full year forecasts, implying they are in line on annualized basis. Gross and operating margins were 48% and 34%, flat compared to 45% and 35% in 4Q09, but up from 36% and 21% in 1Q09.
The group's CPO sales volume fell 14% y-o-y to 69.3k MT due to heavy rains in South Sumatra, which obstructed harvesting activities. But the impact was offset by 6% higher rubber volume and 62% jump in rubber ASP, 13% higher CPO ASP, and 179% higher oil palm seed volume.
Total borrowings were Rp444.2b, down from Rp794.4b in 1Q09 but higher than Rp235b at the end of last year, as the group drew down US$30m in January from its 3-year US$75m refinancing facility that was obtained in Aug 2009. The group is still flushed with cash - the draw down was to ensure adequate cash for capex and dividends in subsequent quarters. The group had virtually no new planting in 1Q10, but maintained a target of between 7.0-7.5k ha of new planting for the full year. We assumed 7.5k ha of new planting for this and next year.
Recommendation
We are maintaining our Hold rating for LSIP, as we believe its growth potential has been priced in at the current price. Our Rp8,950 target price implies 13.1x FY11F PE.
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