Credit Suisse: London Sumatra - LSIP's 2Q10A performance is commendable but we see the risk of a softer 2011E CPO price outlook

● LSIP reported Rp250 bn in 2Q10A earnings, up 36 %YoY and 49% QoQ. CPO output dropped marginally by 2% YoY but was up 16.4% QoQ. LSIP achieved Rp418 bn in 1H10A earnings, up 45.7% YoY, and 45% of consensus and 46% of our expectations.

● LSIP’s performance has met our and consensus’ expectations at a better rate than its local peers, supported by robust rubber prices as well as a continuous improvement in cost control.

● We remain positive about the 2H10E CPO price outlook on low inventories, weather concerns, a weak US dollar and seasonally lower production towards the end of 2010E. However, we foresee a reversal of tree stress, potential additional supply from new
planting, limited additional incentives for biodiesel and the risk of higher soy inventory curbing the 2011E CPO price outlook.

● While we commend LSIP on its robust 2Q10A, its share price may face potential headwinds from a weaker CPO price outlook. We maintain our NEUTRAL and TP of Rp9,213/share, based on 15x 11E P/E