Tough 1H23 with Potential Resurgence in 2H23
Key Takeaways:
◼️ DSNG 1H23 booked a revenue of IDR4.4tn (+15.1% YoY), which predominantly came from the palm oil segment as the company's biggest revenue contributor (88.4% of total revenue) with a growth of (+28.2% YoY). Despite the downtrend in CPO ASP, DSNG is capable of boosting its revenue by intensifying its CPO production with 27.7%/29.2% YoY growth in 1Q23 and 2.5%/3.2% YoY growth in 2Q23.
◼️ DSNG's net profit was dragged down to IDR361.7bn (-21.8% YoY) due to the peak fertilizer price at the time the company purchased in advance, compressing the company's margins and rendered the 1H23 NPM at 8.3%.
◼️ We expect DSNG production will increase by 673k tons in 3Q23 and 720k tons 4Q23, following the company's historical production pattern and the lagged effect of La Nina in recent years.
◼️ We also anticipate further finance cost efficiency as more loan repayments are on the way. So far we have seen reduced finance costs in 1Q23/2Q23 of by -53%/-33% YoY that helped alleviate pressure off the company’s net margin.
◼️ We recommend BUY for DSNG after fine-tuning FY23E and onwards production projection along with the potential costs incurred, with an adjusted target price (TP) of IDR710 (18% upside), implying a PE of 6.1x/5.8x and a PBV of 0.8x/0.7x for FY23E/FY24F. Several key risks to our call include: 1) Black Sea dispute escalations to spike fertilizer prices, 2) weather surprises, and 3) labor turnovers.
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