Higher Expectations Ahead
Robust Performance in 1H21, but…
•LSIP IJ managed to book a stellar performance in 1H21 with a +39.03% YoY growth on the topline to IDR2.18 trillion, quite lower than our estimate (reaching 44.33%). Higher CPO sales volume (+7.64% YoY) contributes to the revenue growth, supported by the rally on average selling prices of CPO (+25% YoY) and FFB (+56% YoY).
•Cost was also successfully suppressed with efficiency which nearly doubling their gross margin at 34.68% (vs 17.63% in 1H20). Moreover, major decrease on fair value asset loss (-90.92% YoY) has boost operating profit by +692.29% YoY with OPM rose to 28.01% (vs 4.91% in 1H20).
•Therefore, net profit rose staggeringly by +444.87% YoY to IDR501.22 billion, reaching 47.66% of MNCS estimate, with net margin almost quadrupled to 23.02% from 5.87% in 1H20.
…We Expect More in 2H21E
•We note that the top and bottom line realization are somewhat below our estimate, caused by a weaker performance in the 2Q21, in which revenue and net profit fell by -17.94% QoQ/-31.37% QoQ.
•CPO production stood at 164 thousand tons in 1H21, only reaching 43% from our estimate of 378 thousand tons in FY21E. While, on a quarterly basis it tumbled by -9.30% QoQ.
•However, these issues are quite common, as we see that 2Q and 3Q performance are showing a weakening pattern in previous years while it will be made-up by the 4Q production (rainy season starts in 4Q). Therefore, we believe the 2H21E performance will come back stronger as we expect both revenue and net income to rise by +38.85% YoY/+51.09% YoY in FY21E.
CPO Price will remain on an Uptrend in FY21E
CPO price has stayed at MYR4,000/mt levels for quite a while now, precisely at MYR4,265/mt which grew by +55.83% YoY/+18.47% YTD. We see that several catalysts have brought the price back up, such as: 1) Strong demand from India and China; 2) New Levy Policy, as mentioned in our previous Plantation Sector Update Report. Thus, we decide to increase our average price estimate for FY21E to~MYR3,800/mt from MYR3,500/mt as we believe the price will stay high for the rest of the year.
Maintain BUY Recommendation on LSIP IJ with TP: IDR1,920
Our recommendation remains BUY for LSIP IJ with TP: IDR1,920 which implied 1.31x/1.21x PBV in FY21E/FY22F. We still see a potential upside of +73% in the long run as we expect a decent performance supported by higher ASP in the FY21E while maintaining their liabilities at zero debt level. Lastly, the risk to our call is lower production due to the weather and the pandemic. LSIP is currently traded at -1STD with 0.80x PBV.
Disclaimer
