DBS Sampoerna Agro: Buy; Rp2,700; TP Rp3,250; SGRO IJ

To Build Sago Processing Factory

Bisnis Indonesia today reported that SGRO will start the construction of its Tebing Tinggi Island (Riau) sago processing factory in October 2010. The factory is expected to be commissioned next year; and will have production capacity of 100 MT per day. The construction cost was said to range between US$7m and US$8m. The group's sago plantation covers 21,620ha, of which 12,000ha have been planted. The plants are ready for harvesting by the end of 2011.
SGRO is currently focusing on rehabilitating the sago estates and is not expanding the planted area. The cost for this rehabilitation is c.US$5m, which is funded by bank loan.

SGRO has also increased their stake in PT National Sago Prima from 75.5% to 91.85% as part of their diversification plan from crude palm oil business.
We have not yet imputed contribution from this venture, as it will not come of stream in the near term and is relatively insignificant relative to the group's consolidated earnings. For now, we are maintaining our forecasts, rating and TP for the stock.