RESEARCH

RESEARCH

31 Oktober 2018

PT PP London Sumatera Indonesia Tbk LSIP

Growing Against Challenge

 

1H18 Performance: Sales drop affected by the timing in CPO stock realization
LSIP recorded lower sales of IDR1.76 trillion or slipped by 28.50% YoY in 1H18 (vs IDR2.46
trillion in 1H17), representing 40.70%/40.97% of the Consensus/MNCS estimate. Gross
profit decreased by 45.78% YoY to IDR3.95 billion with gross profit margin at 22.45% in
1H18. The net profit also significantly decreased to IDR224.03 (-47.71% YoY) with net
profit margin stood at 12.79% level mainly due to lower average selling prices of palm
product (CPO & PK) and rubber and lower sales volume. CPO sales volume were affected
by the timing in CPO stock realization.


Several Potential to boost FY19E Performance
We believe that the positive trend evinced in FY18E will continue to FY19F, supported by
several catalysts, as follows: 1) The government's policy of implementing mandatory B20,
extended to the non-Public Service Obligation (PSO) segment, will potentially encourage
Indonesian FY18E biodiesel consumption to top 4 million kiloliters; 2) LSIP plans to carry
out replanting on 1,000 hectares of land which replanting will enable LSIP to maintain long
-term supplies to meet domestic palm oil demand; 3) Healthy balance sheet with zero
debt become excellence. On the other hand, CPO prices have the potential to increase in
FY19F as a result of the potential of El-Nino during January-March 2019.

Main Focus on Influence Weather
End of 2018, La Nina is predicted to occur in Indonesia. However, it would likely be a
relatively weak La Niña, because of uncertainty about rainfall. On the other hand, we
assess LSIP as still capable of record production growth of 9.56% in FY18E, to 463,184
tons. This will certainly increase the supply of CPO, which will have an impact on declining
CPO prices in FY18E.


Recommendation: Initiation BUY at TP IDR1,540
We recommend BUY for LSIP, at a TP: IDR1,540 which implies PE/PBV 17.46x/1.25x on
FY18E and 13.81x/1.18 on FY19E. We believe that expansion carried out by LSIP, both
organically and inorganically, as well as the ability to defend market share, points to
increasing LSIP growth in the future, supported by: 1) Demand for domestic and foreign
palm oil; 2) Replanting as a strategy to maintain long-term growth; 3) Healthy balance
sheet condition with zero debt in 1H18.

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