DBS Sampoerna Agro: Buy; Rp2,475; TP Rp3,275; SGRO IJ

2Q10 earnings in line with expectations

Sampoerna Agro reported net profit of Rp88.2bn, representing an increase of 105.9% q-o-q and 8.0% y-o-y in line with expectations. The increase was mainly driven by 46.8% q-o-q jump in revenues, reflecting FFB yield recovery over the same period. Operating margin for 2Q10 improved slightly to 28.9% from 29.4% in 2Q09; while net margin was flat at 19.9% from 20.4% in 2Q09.

For 1H10, the group's net profit of Rp131.0bn represented 34% of our full year forecast. As in the last year, we expect 2H10 production to recover slightly faster than peers. The group was in net cash position of Rp78.0bn at the end of March.

We are maintaining our forecasts and buy call and TP of Rp3,275, pending analyst briefing today; although we are likely to reduce the group's targeted new planting this year due to heavy rains year-to-date. This may not significantly reduce our valuation.