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Minggu, 17 Juli 2011

SGRO:Strong organic growth - Mandiri

We did a site visit to SGRO’s Kalimantan estates and mill. We were impressed with the excellent operational practices in its estates and mill, re-affirming our positive view on SGRO. We like SGRO because: 1) we expect robust growth in its nucleus FFB production in the future due to aggressive new planting in the last few years. SGRO is one of few Indonesian listed companies doing aggressive new planting (exhibit 14). 2) We expect its margins to keep expanding due to higher proportion of FFB from nucleus to total processed FFB because the growth of its nucleus FFB production is higher than the growth of its plasma FFB production due to its plantation profile (exhibit 16). Maintain Buy on SGRO with a DCF-derived TP of Rp4,150/share, implying PER FY11F and FY12F of 13.8x and 12.2x, respectively.

Nucleus estates grew by 07-10CAGR of 19.6%, robust FFB production ahead. SGRO’s Kalimantan nucleus estates grew by 2007-2010 CAGR of 19.6%. Meanwhile, its consolidated nucleus planted area grew by 2007-2010 CAGR of 17.2%, which is one of the fastest (exhibit 14). As oil palm trees start to generate fruit after it enter the age of 4 years, SGRO’s aggressive new planting on nucleus estates in the last few years should generate strong growth in its nucleus FFB production. We estimate its nucleus FFB production should grow at 2010-2012F CAGR of 12.7%.

Various cost-effective activities. SGRO does various cost effective activities such as mechanism in fertilizer application and using Palm Oil Mill Effluent (POME) as fertilizer. This matter has made SGRO’s cost per ha is lower than AALI and BWPT (exhibit 15). Cost for doing fertilizer application (excluding fertilizer cost) by mechanism is 56.0% cheaper than by manual (mechanism=Rp49,500/ha/year vs manual=Rp112,500/ha/year). Out of its Kalimantan nucleus matured plantation of 13,974ha, SGRO’s Kalimantan estates currently applies mechanism in fertilizer application in 9,000ha and additional 1,000ha next year. Meanwhile, POME application increases its FFB yield/ha around 2 - 7% by increasing its average weight of FFB.

Decrease in loading time may slightly increase its CPO price ahead. It takes about 6 days for loading CPO to customers’ vessels. The bottleneck is the number of trucks (contractor-owned) for transporting CPO from mill to port. SGRO plans to double up the number of trucks in 2012 to decrease the loading time, which should favorable for SGRO’s CPO sales price. We learning from BWPT that quicker loading time allow the company to sell its CPO 0.5% higher than its neighbors.

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