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23 Juli 2021

DSNG IJ - MNC Sekuritas Equity Report 23 July 2021

To Sustainability and Beyond

 

The Most Sustainable and Environmentally Driven CPO Producer in the Country
PT Dharma Satya Nusantara Tbk (DSNG IJ) is a green and sustainable producer of palm oil and wood products for more than 30 years. It has the #4 largest revenue share out of the other listed plantation companies. The palm oil plantations are located at Borneo with mostly prime mature plant characteristic with a total of 112,600 ha planted area. While, the wood production facilities are located in Central and East Java, producing one of the most notable global wood engineered flooring brand “Teka”.

Potential Role in Global Supply Chain
In the light of environmental awareness, such as deforestation, several companies in developed countries has no longer use palm oil as their part of ingredients. We know that DSNG is currently a domestic supplier. But with it’s competitive advantage on ESG and sustainability along with the demands from other brands for sustainable palm oil, we hope that going forward, DSNG can also be a part of the sustainable global palm oil supply chain.

Several Additions of Renewable Energy are on It’s Way:
1) Bio-CNG plants: For the Economy and the Environment
The first Bio-CNG plant in Indonesia, owned by DSNG, has been operating since in September 2020. It is located in East Kalimantan with a capacity of 2x600 kW which provides 1.2 MW used to power the Kernel Crushing Plant (KCP) and the Bio-CNG Plant itself. As for the remaining biogas will be upgraded and compressed into Biomethane Compressed Natural Gas with a capacity of 280m3/hour. Subsequently, six Bio-CNG plants are planned to be constructed within the next two years with the second plant currently under construction. The second plant will generate power from liquid waste in two POMs with a capacity of 120 tons FFB/hour which resulted in 2x850 kW of energy and 540m3/hour biomethane gas. The investment worth USD47 million for these plants and when the seven plants run it would be able to save ~16 million liters of diesel per year and reduce carbon emission by 400,000 tons per year. With the economic gain, DSNG can reduce it’s overhead cost which accounts for ~25% of the cost of revenue and provide a wider GPM in the long run.

2) Solar panels on the Wood Factory
In continuation of the green energy, DSNG plans to install a solar power plant utilizing the Norwegian technology on the factory’s roof top of their wood business subsidiary, PT Tanjung Kreasi Parquet Industry (TKPI), with a coverage area of 16,000 m2. The plant can produce 2MW at its peak capacity. We believe with the Bio-CNG Plant and the solar panels, DSNG is on a head start towards a greener energy which is a step faster than the government who aims for a net zero carbon emission in around 2060, whereas DSNG’s roadmap is rather short to aim for the net zero in FY25. Hence, DSNG is putting all their energy and focus on the sustainability goal. While their source of fund came from capital expenditure which is budgeted at IDR1 trillion for FY21E.

Initiate BUY on DSNG with TP: IDR960
We initiate BUY on DSNG with TP: IDR960 which implied 1.48x/1.37x PBV in FY21E/FY22F. There is potential margin increase with the decrease on export levy as well as from the CPO price uptrend. With the increasing investor’s appetite toward ESG stocks, DSNG is one of the most lucrative choice. While the risk to our call is lower production due to the weather and the pandemic.

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