Gozco, Forever Young

Gozco Plantations (GZCO IJ) is showered with abundant land bank
availability and young age profile (average age of 7 compared to peers of
10). Factoring additional mature hectarage of 2.1k ha, we estimate 20%
growth in CPO production, leading to 10% EPS growth in 2012. But this is
just the beginning, with FFB production Cagr of 52% from 2011-14CL, we
believe Gozco full potential to kick off in 2014. We set our TP at Rp
410/sh, implying 10x 2013 P/E, 30% discount to Astra Agro. O-PF.


Spacious room to grow
While its peers are facing difficulties in getting new land due to the
moratorium and pricey land price, Gozco has secured 80k hectares(ha)
unplanted landbank. Up until January 2012, planted area reached 36.5k ha,
only 30% of its total landbank. Gozco aims to add new planting of 5k ha
annually to achieve 50k ha planted area in 2014, allocating Rp250bn in 2012.

Blooming production growth ahead, FFB yield to recover gradually
Factoring 2.1k ha of nucleus immature plantation that will shift to
mature/producing age, we estimate 20% and 23% growth in CPO production
2012-13CL. But this is just the beginning, with FFB production Cagr of 52%
within 2011-14CL, towering over its peers, we believe Gozco full potential to
kick off in 2014. Regarding last year low average yield at 14 FFBtons/hour
(-16% yoy) due to “stressed seedlings”, we expect yield to recover gradually
through water management, fertilizer, and nutrition balance.

Margin recovery
After Gozco was stormed with significant lower gross margin last year, we
foresee 2012 gross margin to recoup to 33%. This anomaly in margin growth
compared to its peers is driven from 6% lower purchased FFB. Our sensitivity
analysis showed that a 5 and 10% decrease in purchased FFB tons could
increase gross margin to 34% and 36%.

Re-initiate with O-PF
We like Gozco for its vigorous growth potential and undemanding valuation
whereby we expect it to deliver 25% EPS Cagr 2011-14CL. Thus, we reinitiate
the stock with O-PF and set our target price of Rp 410/sh deriving
from 10xFY13CL EPS, 30% discount Astra Agro (AALI IJ).

Download file : Indonesia GZCO Final