PT Sampoerna Agro (SGRO) 1Q11 results update - Ciptadana

Solid 1Q11 results – SGRO reported earnings grew triple in 1Q11, the highest in our plantation coverage. Growth was mainly driven by spiking CPO price and production growth in 1Q11. Average CPO price increased by 42% YoY to RM3,649/ton, and SGRO managed to double its CPO production. 1Q11 results were above our expectation, however we will not change our estimation as SGRO’s production pattern has not been able to be predicted yet.

Earning increased by 337% - SGRO’s earning grew by 337% YoY to IDR 189bn, followed by sales and EBIT that surged by 151% and 286% to IDR 759bn and IDR 248bn, respectively. Palm product contributed 95.3% of total revenue. Average CPO selling price was up by 27.7% YoY to IDR8,357/kg while palm kernel increased by 112% YoY to IDR6,675/kg. Volume sales for both product also surged by approximately 86% each. Overall results were above our estimation, EBIT and earning results were 30-35% of our full year 2011 projection.

Production strong, pattern volatile – For 1Q production result, 1Q11 was the highest since 2006. FFB production reached 383,673tons, increased 101% YoY and led to CPO production of 27,710tons, increased by 104% YoY. This is significant as robust production occurred when CPO price picked. Further, production growth in 1Q11 was also driven by Kalimantan side, increased 7% QoQ and 65.3% YoY. In our view, Kalimantan production results indicated promising recovery which should ensure long term production growth. However, nlike LSIP or AALI that mostly record smallest contribution from 1Q production, SGRO’s pattern has been very volatile since 2006 (Figure 1). 1Q11 CPO production was 26.3% of our full year production projection and we will maintain our production forecast until further result which will be announced by management.

Maintain BUY - We maintain our buy recommendation for SGRO with a target price of IDR3,900/share. Despite uncertainty in production, SGRO managed to maximize the CPO price momentum in 1Q11 and recovery in Kalimantan estate should help to lift 2011 production. SGRO trades at 11.97x P/E 2011, representing 15.5% upside potential to the share.