DSNG Site Visit Report: Streamlined Operations Showcased
Key Takeaways:
◼️ We recently visited DSN's largest plantation area in Muara Wahau, East Kalimantan, encompassing 60k ha (or 56% of DSN's total planted area), nearly the size of Singapore. The Muara Wahau cluster consists of 5 plantations, 7 palm oil mills producing 440 tons/hour, and a kernel crushing plant (400 tons/day capacity).
◼️ DSN's commitment to ESG practices is reflected from their Bio-CNG plant capable of producing 1.2MW of power. The adoption of Bio-CNG saved the company 3.7mn litres of diesel consumption in FY22, and with a second Bio-CNG plant commissioning underway in 4Q23, more diesel cost savings can be expected.
◼️ DSN is on track to fulfill their 1,000-1,500 ha replanting target in FY23E. The replanting will involve enhanced seed varieties by Verdant Bioscience Pte Ltd. The Verdant strain is posited to reach its peak productivity faster, enabling quicker cashflow recovery.
◼️ DSN continues to upscale their mechanization, for instance in the harvesting process, which can increase efficiency from 1.7 tons/day of work to 2.2 tons/day of work while decreasing cost per ton by roughly 2%.
◼️ Rainfall patterns have continued to provide adequate irrigation to the plantation areas throughout Aug and Sep-23, boding well for the company’s performance in 2H23, with El-Nino risks on productivity to require further observation in FY24F.
◼️ We recommend BUY for DSNG with a maintained (TP) of IDR710 (14% upside), implying a PE of 6.1x/0.8x and a PBV of 5.8x/0.7x for FY23E/FY24F (see our DSNG company update report at: https://tinyurl.com/MNCS-DSNG-21Aug23). Several key risks to our call include: 1) fertilizer and CPO prices volatility, 2) weather surprises, and 3) labor turnovers.
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