DBS Indonesia’s rains support bullish CPO price

We estimated Indonesia CPO production to grow 3-5%YoY in 2010-11E
Our proprietary Indonesia crude palm oil (CPO) supply model estimated
production to grow at 3%/5% YoY in 2010/11E. This implies 0.6m and 0.9m
tonnes additional production for 2010 and 2011, respectively. Near-term
productions are lower than 2009’s, which grew at 8% YoY and added 1.5m tonnes.

Productivity challenges ahead
We believe the effects of the rains so far in 2010 may compromise Indonesian CPO
companies’ initial targets for annual production volume this year. Continuing rain
as in the first half of this year may present several productivity challenges
associated with pollination, harvesting, and logistics. We think productivity
challenges ahead may potentially lower volume production and operating margin
near term for Indonesian CPO producers.

Maintain bullish CPO price assumption for 2011
We maintain our benchmark CPO price assumption estimate at US$782/tonne in
2010 and an increase of 14% YoY to US$882/tonne in 2011. Potential
disappointment in Indonesia supply supports our price view. The CPO benchmark
price average year to date is US$780/tonne.

Preferred pick—London Sumatra
We prefer London Sumatra (LSIP) in the Indonesian plantation sector due to
potential upside on efficiency and growth from underperforming estates in South
Sumatra. Our new price targets for Astra Agro (AALI) and LSIP of Rp25,950 and
Rp12,100 are calculated using target EBIT/EV yield of 7 and 8%, respectively.