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Indonesia News: Sampoerna Agro Upgraded

Economist and Hedge Fund Manager Shayne Heffernan of www.livetradingnews.com takes a look at Sampoerna Agro.

Firstly lets look at the problems at Sampoerna Agro.

Sampoerna Agro an unimpressive EQ score of 5, suggesting poor earnings sustainability.

A low Earnings Quality score indicates poor earnings sustainability over the next 12 months based on a company’s past operating performance.

StarMine’s SmartHoldings model is a global stock selection model that ranks stocks based on expected future increase or decrease in institutional ownership.

As a result the stock has drifted over the last year and has been hit by a number of reductions by analysts on the expected earnings per share, this has lead to a very low valuation on market.

Palm oil futures will trade between 2,300 ringgit (US$756.65) and 2,600 ringgit between now and February 2013, as high stocks more than make up for strong Asian demand growth.

Other analysts and traders surveyed by Reuters at the meet also saw palm oil prices averaging 2,500 ringgit next year, or 17 percent off this year’s average of 3,016 ringgit.

Our research has Palm Oil trading over 3,000 Ringgit by the end of March 2013, and Palm oil stock are looking very attractive.

Palm oil is now trading at above 2,350 ringgit, sharply lower than year-ago levels of above 3,000 ringgit.

Prices next year will be affected by the performance of benchmark Brent crude oil and the Chinese quality requirements.

Relative Valuation

This reflects poorly on management at the company however over the last moth the company has begun to address the issue.

Sampoerna Agro, have set capital expenditure at Rp 1 trillion ($104 million) next year as it seeks to increase planted area to further expand its business.

The chart is also saying it is time for a reversal of fortune. (double click to see full chart)

Sampoerna Agro Live Trading News Maro Chart

Michael Kesuma, Sampoerna Agro’s head of investor relations, said that around Rp 800 billion of the funds will finance the company’s palm oil business.

The amount will be enough to add another 10,000 hectares of planted area for the company’s palm oil business, according to Michael.

He added that the remaining Rp 200 billion will be used to finance the company’s plan to increase the amount of planted area for its sago business by another 2,000 hectares.

Currently, the planted area for sago stands at 8,000 hectares, while the company expects that the crop will be planted in an area covering 21,600 hectares of land by 2015, said Michael.

Hadi Fauzan, Sampoerna Agro’s corporate secretary, said that 65 percent of capital expenditure will be financed by bank loans, while internal cash will cover the remaining costs.

He said that several lenders have offered Sampoerna Agro a syndicated loan, but did not name the banks.

Hadi added that Sampoerna Agro also planned to spend Rp 90 billion to expand the capacity of its palm oil refinery plant to 500 tons per hour from its current 450 tons per hour.

“The expansion will finish within one to one and a half years,” he said.

Sampoerna Agro made a net income of Rp 226 billion on the back of Rp 2.15 trillion in revenue during the first nine months this year, a 51 percent and 14 percent decline, respectively. Such poor performance was the result of a fall in commodities prices.

Sampoerna Group is owned by the family of Putera Sampoerna, one of the richest individuals in Indonesia.

Sampoerna Agro has several units, including Binasawit Makmur, which produces and sells six varieties of high quality oil palm seeds under the brand name of DxP Sriwijaya. It also owns National Sago Prima, a company that produces high quality sago starch under the brand name Prima Starch. The product is sold in both the domestic and international markets, according to the company’s website.

Interested in Investing in Asia?

Linda Johnson,
Business Development Director – Private Client Group,
Heffernan Capital Management
Sales@Heffcap.com

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