Astra Agro Lestari, Disappointing 1Q12 Results on Lower CPO ASPs and Higher Costs; Reiterate Sell, Citi

 1Q12 in a snapshot — CPO sales volume grew 5.2% YoY to 299k tons (23% of our
FY12E of 1.31m tons) but was insufficient to curb the negative impact of the 6.9% YoY
drop in CPO ASPs to Rp7,706/kg. Hence, revenues dropped 7% YoY to Rp2.6trn (20%
of CIRA FY12E; 22% consensus). This, along with higher COGS and OPEX (+9% YoY
and 32% YoY respectively) subsequently led to margin deterioration and dragged down
earnings by 42% YoY to Rp378bn (13% of CIRA FY12E and 14% consensus). Fig 2-5.

BW Plantation, 1Q12: Strong y/y growth, Nomura

Earnings came in line with our and consensus estimates
1Q12 earnings made up 20% of our full-year forecasts and 21% of
consensus FY12 forecasts.

What do the results mean?
The results reaffirm our belief that BWPT will show strong earnings
growth in FY12. However, while our numbers are slightly higher than
consensus, our PB vs excess ROE valuation framework indicates that
there is not much room left to chase the stock at these levels.
1Q production growth is weak (+4% y/y) considering the >20% growth
that consensus expects for FY12. This is actually an industry-wide
problem, particularly in March, and we think production should normalise
from April onwards, but it does highlight that risks for BWPT are actually
biased on the downside since expectations are very high.

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.

Sampoerna Agro, Inferior margin, CLSA

Sampoerna Agro (SGRO IJ), the fourth-largest plantation company by
planted area, would likely to see inferior margin compared to its peers,
particularly during strong CPO price environment. The fact that their
plasma production accounts for 40% of company’s plantation area would
translate to higher cost – of which about 70-75% of production cost still
come from FFB purchased. Re-initiate with U-PF on its inferior margin and
more volatile production.

Lonsum, Superior profitability, CLSA

We like London Sumatra (LSIP IJ) on its superior cost structure and
production growth profile. We expect to see company’s oil yield
improving to 4.5-4.8tons/ha in 2012-13, from 4.3tons/ha in 2011
supported by its continued infrastructure improvement coupled with
maturing age profile. Its Ebit margin also stands out at 41-42% range,
the highest amongst CPO companies under our coverage. We set our TP
at Rp3,600/sh, implying 13x 2013 P/E, 10% discount to Astra Agro. BUY.

Astra Agro, Mounting production cost, CLSA

Astra Agro Lestari (AALI IJ) is set to see production growth slowing to
5% Cagr over 2011-14CL as plantation ages, exacerbated by lack of land
bank and rising costs. Third party FFB dependency will continue to erode
margin, while rising wage will lead to 5% higher production costs. We
thus trim our 2012/13 EPS by 12-16% respectively elaborating new
export tax as well as higher production costs. We set our TP at
Rp24,000/sh, based on 14x FY13 EPS, its 5-yrs mean P/E. Re-initiate
with U-PF.

Indonesia Plantation, Supply tightness, CLSA

We believe palm oil supply will be tight in the near-term as weather
volatility prevails amid lack of new plantings. Particularly for Indo,
production growth of palm oil will likely decelerate to 6% this year from
2011’s 8% as trees enter biological slowdown while domestic demand is
seen rising. As a consequence, we uplift our CPO price assumption to
RM3,300/t this year. Amongst Indo plantation companies, we like LSIP
given its superior profitability and strong production growth potential.

Regional Plantations , Clouds on the horizon, Macquarie

The fundamentals of Crude Palm Oil (CPO) held up relatively well through 4Q11

and 1Q12, as we had expected. However, an elevated macro risk environment

kept most investors away from plantation stocks for the better part of last year.

With these risks receding somewhat, we have finally seen equity prices catch up

with the fundamentals of the commodity. In the past three months, plantation

stocks have risen on average by 14% vs. a 2% rise in the commodity. From here

on, individual company prospects, rather than the commodity price, are likely to

drive differential stock performance in our view.