Falling FFB Yield on Increasing Mature Plants
BW Plantation’s increasing mature plantations has come in line with our expectation. As of Mar-13, mature plants reached 41,448 ha, which almost met FYE13 target of 42,000 ha. Despite feeling comfortable with on time maturing plants schedule, but we are a bit worry about falling FFB yield trend. We noticed that FY12 FFB yield has fallen below 20
ton/ha, compared to 23 ton per ha in FY11. This year, we expect FFB yield to fall further to 16 ton/ha, as new mature plants was already close 15,000 ha as of Mar-13, compared to 9,000 ha during FY12. Taking into accounts our revisions on FFB yield assumption, we also revised down our FY13-14F CPO production target by 2-7%.
Downward Revisions on Earnings
Beside cutting production forecast, we also revised down our ASP for FY13F and FY14F by 22% and 24% to Rp6,002 per kg and Rp6,180 per kg as we have trimmed our FY13F and FY14F CPO price assumption by 16% and 23% to US$826 per ton and US$850 per ton. This has led us cut our FY13-14F by 21-27%, and we also trimmed total revenue projection for FY13-14F by 23-28%. Besides cutting our revenue projections, we also cut our gross profit projection for FY13-14F by 28-32%. Higher downward revision on gross profit mainly owns to our assumption that BWPT is unlikely avoids cost increase amidst the maturing plants leap phase. On the other hand we also trimmed FY13-14F EPS by 36-44%, as we have incorporated recent drawdown of bank loans from BRI and BNI amounted Rp2 tn in to our model. We estimate that the new loan drawdown would lead to annual interest expense increase to circa Rp120 bn in FY13F, from Rp70 bn in FY11-12. Thus, deteriorating operating results coupled with higher interest has led us to trimm our FY13-14F EPS significantly.
Valuation: Downgrade to Hold, TP at Rp1,070
Taking into account our downward revisions on earnings, we lower our DCF based TP to Rp1,070, pegged the stock at 2013-14 PER of 21.4 – 13.4x. With only 9.2% upside potential from current price level, we downgrade our call to HOLD. The key catalysts to our HOLD call is: 1) The failure of maintaining FFB yield has led to slower CPO production forecast, 2) Lower CPO price would minimize the effect of increasing mature plants 3) Higher interest expense would be charged to company’s earnings in the coming years.
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