No impact from mild CY09 El Nino - DBS Vickers

• 4Q10 earnings of Rp202.9bn (+72% q-o-q, +161% y-o- y) were above expectations
• 4Q10 FFB output grew 15% q-o-q, 25% y-o-y - relatively unscathed by mild 2009 El Nino
• FY11F-13F EPS revised by 2-3% to account for FY10 results, capex raised by 50-160% on expansion
• TP lowered to Rp4,400 on higher capex. Buy call reiterated for 56% upside

Strong 4Q10 results. Sampoerna Agro (SGRO) reported 4Q10 net profit of Rp202.9bn (+72% q-o-q, +161% y-o-y). This brought FY10 earnings to Rp451.7bn (+60% y-o-y) – ahead of expectations. Strong 4Q earnings were driven by revenue growth of 51% q-o-q on the back of 15% higher FFB output, 16% higher CPO ASP and 27% jump in PK ASP. SGRO’s FFB yields peaked in 4Q10 (instead of 3Q10 expected), as FFB yields were relatively unaffected despite 3-4 months of moderate dry
weather in 2009. Palm products accounted for 97% of sales, followed by germinated seeds (2% contribution).

Strong 1Q11 expected As at 31 Dec10, SGRO had c.25k MT of CPO inventory (24% of 4Q10 output vs. 11% as at 31 Dec09). We believe this should support higher sales in the upcoming quarter. SGRO has also secured one year supply of potash (MOP) fertiliser at US$550/MT, which should stabilize
SGRO’s cost in FY11. The group planted 5.6k ha in FY10, higher than 5k ha expected. An expansion of 10k ha p.a. (until FY14, including smallholder estates) is guided going forward.

FY11F-13F earnings revised by 2-3%, reflecting FY10 results, increased own new planting to 8k ha p.a. from 7k ha, new term loan (Rp115bn), and higher capex. SGRO guided Rp1t capex for FY11, mainly for new planting and construction of mills for its sago segment. We assume capex outlay of Rp815bn for FY11F, Rp580bn for FY12F and Rp610bn for FY13F – raised from Rp313bn, Rp375bn, Rp403bn, respectively.

Buy call reiterated for 56% upside to our revised TP of Rp4,400 (DCF: WACC 13.4% Rf 8.5%, Rm 13.5%, B 1.03, TG 3%), lowered from previous estimate of Rp4,625, on the back of higher FY11F-13F capex assumptions. We believe strong earnings delivery in 1H11 should re-rate the counter.