PT SAMPOERNA AGRO Tbk (SGRO) First half 2011 results update - Ciptadana

1H11 results – SGRO reported 1H11 earning of IDR 356 bn, increased by 172% YoY but 9.1% declined on quarterly basis. Sales surged by 129% YoY in 1H11 and 25% QoQ while EBIT declined by 3.4% QoQ however still managed to record 155% growth YoY. Negative growth on quarterly was primary caused by substantial increased in plasma production that lifted up the COGS by 43.2% QoQ. Overall results were above expectation, in which the results were 67% of consensus and our estimation.

Another solid production, led by plasma – 1H11 productions was solid. FFB surged by 70.5% YoY, led by plasma production that grew by 90% while nucleus only grew by 40%. CPO production grew inline by 71% YoY to 104 k ton and has reached the highest first half production since 2006.

Margin contraction – 2Q11 gross margin shrunk to 35.7% from 43.7% in 1Q11. Margin contraction was mainly caused by higher plasma production cost. 90% growth YoY of plasma production has surged the FFB purchase cost by 150% to IDR 793.7 bn. Also, contribution of FFB purchase to cost of sales increased from 67% in 1H10 to 76% in 1H11. There will be a possibility of recovery in margin once the nucleus productions catch up.

Maintain our target price – We maintain our target price of IDR 3,900 which implies P/E FY’11 of 13.83x and FY’12 of 13.12x. We also maintain our production projection as there were unstable production patterns for SGRO.