PT London Sumatra Plantation Tbk (LSIP) Ongoing Good Result - AAA

LSIP continued to book good result in 1H11 with revenue increased 52% yoy to Rp2.3 tn while net profit was up 112% yoy to Rp886 bn. The higher revenue was due to 12% yoy increase in CPO ASP and PK ASP of 34%, while sales volume of CPO yoy was up 27%, PKO 18% and Palm Seed 61%. These results were above our expectation. Based on these impressive results, we have recalculated our forecast and upgraded our TP to Rp3,400.

± Production In Good Shape, Sales Volume Up
The production increased 26% yoy to 860,891 tons in 1H11. This was mainly because of the favorable weather in the 1H11. FFB from plasma and 3rd parties were also up 58.8% yoy while from nucleus was 15.3%. Downstream, the CPO production increased 25% to 199,447 tons yoy. Combined with higher ASP, the higher production led to an increase in sales volume of CPO, PKO and Palm Seed of 27%, 18% and 61% respectively.

± Stable CPO Price
ASP CPO was up 12% yoy to Rp7,239/kg and ASP PK also up 34% yoy to Rp4,481/kg in 1H11. Although production or harvest in the 2H11 will likely to be higher than the 1H11, we expect CPO price to remain relatively unchanged due to strong demand particularly in Asia.

LSIP’s palm seed is highly demanded with its ASP of Rp10,700/seed. LSIP palm seed price is believed to be one of the highest quality in the industry. However, the contribution to the total sales is insignificant of about less than 5%.

± Financial Performance
LSIP’s sales to its parent, SIMP was up from 51% (Rp797.9 mn) in 1H10 to 65% (Rp1.5 tn) in 1H11. This is one of the advantages of having an integrated business within the group.

While revenue has increased 52.12% yoy to Rp2.38 tn in 1H11, the net profit soared 112.2% yoy to Rp886 mn in 1H11 from previously Rp418 mn in 1H10. Higher percentage increase yoy of net profit than revenue in 1H11 was due to the impact of economic of scale on lower manufacturing costs plus the lower operating forex losses. In addition, with IndoAgri Resources sold 8% of its ownership to PT Salim Ivomas Pratama and to public in December 2010, the share’s public float increase to 40.5% (from 35.6% previously). This entitles LSIP to 5% lower corporate tax. As of 1H11, effective tax rate was at 20%, lower than in 1H10 of 25%.

± Valuation
We revised production forecast for full year 2011 in which FFB production will reach 2 mn tons (up 8%), CPO production will reach 453 thousand tons (up 1%) and PK production will reach 108 thousand tons (down 2%). After the revision our new TP is upgraded to Rp3,400, with an implied PE of 11.5x versus PE industry of 10.5x. Our TP provides about 46.6% potential upside, making LSIP the top picks in our plantation coverage.