Sampoerna Agro: Buy; Rp2,750; TP Rp4,625; SGRO IJ 4Q10 results above expectations - DBS Vickers

First Take:

4Q10 earnings came in at Rp202.9bn (+72% q-o-q, +161% y-o-y). This would bring the group’s FY10 earnings to Rp451.7bn, significantly above our full year estimate of Rp389.7bn.

As previously mentioned in our 3Q10 results report, SGRO still had around 20k MT of CPO inventory at the end of Sep10. This would have boosted SGRO’s sales volumes. Moreover, In contrast to our assumption of 3Q10 FFB peak production (hence our forecast of 7% q-o-q decline 4Q10 FFB production), we suspect FFB yields peaked in 4Q10 instead.

As at end of Dec10, SGRO had total debt of Rp327.3bn - representing an increase of Rp107.5bn (all short term). Cash balance ended at Rp529.6b - in line with expectations.

We reiterate our Buy call on SGRO, as believe the market is ignoring the group's strong growth coming from its own estates. Currently SGRO is trading at 11.1 FY11 PE - one of the cheapest in our coverage.

We will be reviewing our forecasts and TP following the analyst briefing later this morning.