The Meteorology, Climatology and Geophysics Agency (BMKG) said last month that the country was experiencing its most extreme weather on record, including unusually heavy rain linked to La Nina. La Nina is expected to persist through early 2011.
La Nina will decrease Rubber and CPO production. Rubber production will decrease because tapping process cannot be done in heavy rain. CPO production will decrease due to heavy rain will disturb harvesting process.
Due to “the actual” and “the expectation” of low production volume, CPO and rubber prices will increase more than current level.
Considering LSIP’s cost of production still stable from last year, LSIP produces rubber and CPO, and LSIP’s FY10F CPO production volume is expected same with FY10 (not decrease). We estimate LSIP is the most beneficiary of current condition.
Currently, LSIP trades at PER 2010F and 2011F at 14.2x and 12.7x.
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