Indonesia Palm Oil Sector - Earnings sensitivity to CPO price recovered - Credit Suisse

● Earnings sensitivity to CPO prices for Indonesian companies when CPO prices range between RM3,000 and RM3,500 is now higher than that of Malaysian CPO producers. During such a CPO price range, every RM100/t increase in CPO prices translates into
an average 4.3% increase in earnings of Indonesia CPOs versus 3% for their Malaysian counterparts.
● Despite the improvement in earnings sensitivity, we find that Indonesia plantation companies are trading at a discount to their Malaysian peers. Indonesian companies are trading at 11.2x FY11E P/E, while Malaysian companies at 14.9x FY11E P/E.
● We foresee that there might be a potential return of La Nina. However, it still unclear as to what the strength of the La Nina will be, but will most likely be weaker than the one in 2010-11.
● AALI’s August 2011 CPO output was down by 4% YoY (-8% MoM) due to the holiday season and thus September may see a MoM pick-up. However, we expect a flattening output ahead with 4Q11 output likely to decline QoQ.