LSIP A better bet - AmCapital

Investment Highlights
PP Lonsum Indonesia (Lonsum) surprised us with higher than expected FY2010 financial results. Going forward, high CPO and rubber prices should guard its earnings momentum. The planned IPO of its parent company, Salim Ivomas Pratama (SIP), should not distract equity investors away from the counter as Lonsum offers better return given its pure commodity play in the light of rising soft commodity price. BUY.

FY10 results
Lonsum’s FY10 results surprised us with higher than expected gross profit, operating profit, pre-tax profit, and net profit amid weather-disrupted plantation activities last year. FY10 top and bottom lines were robustly up by some 12% and 46%.

Enduring momentum
Rising soft commodity prices should guard the company’s earnings momentum. Entering March, CPO price has stayed above US$1,200 per ton, while rubber enjoys stronger rally to more than US$5.0 per kg. Weather, as the swing factor, will further support production this year.

A different ball
The planned IPO of SIP should not distract investors away from Lonsum, in our view. SIP has significant exposure to consumer sector via its cooking oil business, contributing approximately 63% of SIP’s 9M10 revenues. Given rising soft commodity prices and business model as a planter, we believe that Lonsum should be a better bet.

BUY, target price upped to Rp3,000
Windfall profit from higher soft commodity prices should support earnings. Higher than expected dividend could be an additional catalyst to the counter given Lonsum’s debt-free balance sheet. We have revisited our model to factor some adjustments in. Current price is valuing the counter at 2011-12F PERs of 10.8-10.6x. We revise up our year-end target price to Rp3,000 per share. Maintain BUY.