4Q10’s 283% q-q earnings growth: Unsustainable on one-off gains
Despite having booked significant Domas-related restructuring one-off gains from in its 2010 results (60% of net income), Bakrie Sumatera Plantations (UNSP) only managed to register lackluster 2010 diluted EPS of IDR63.9 per share, down 1.27% y-y (exhibit 1). The inclusion of Domas allowed 2010 revenue to rise 29% y-y to IDR3,004b, allowing operating profit to come in at IDR850b (+81% y-y) and net profit to reach IDR806b (+218% y-y). In 4Q10, UNSP reported top line of IDR1,108b, up 46% q-q and 62% y-y, mainly on increased CPO sales and CPO average selling price, bringing 4Q10 operating profit to IDR282b, up just 20% q-q. Meanwhile, net profit reached IDR560b, up 283% q-q, but mostly coming from other incomes related to the Domas acquisition. We do not see this level of net income margin (i.e. 50.6% in 4Q10, up from 19.2% in 3Q10) as sustainable going forward.
Domas acquisition: Not an attractive deal
Having spent roughly IDR330b for the Domas acquisition (IDR110b equity portion and IDR220b on capex & working capital), UNSP management expects to have significant revenue expansion in 2014 when the utilization rate of Domas reaches 90%. However, this is not that exciting in our view for three reasons. First, UNSP’s margin will experience significant contraction by entering the upstream industry (exhibit 23), translating to significant revenue increase but much more subdued at the bottom line level. Second, we expect return on equity to stay low going forward as it did in 2010A ROE of 5%, which was lower than 2009A ROE of 10% (exhibit 13). Third, the impact of consolidated debt from Domas will continue to burden UNSP, as displayed by 2010 net gearing of 26.8%, up from 10.9% in 2009. UNSP earnings in the next few years will depend on its IDR3t debt restructuring result (exhibit 22).
Underperforming estates to persist
The Agri Resources B.V. (ARBV) acquisition (32k ha planted from 56k ha area) has a negative impact on the overall 2010 productivity of UNSP with FFB yield of 13.8, down 19% y-y, and 32% discount from the industry (exhibit 16). Note that UNSP’s estates are currently in their productive stage, with average age of 12 year old (exhibit 20). Thus, while we expect some improvement ahead, we believe productivity will still remain below industry average with unexciting long-term growth in matured area (exhibit 8,9 & 10).
Rich valuation coupled with low profitability
Considering UNSP’s high leverage, low productivity and low profitability, we reiterate our bearish view on this company. We forecast UNSP’s top line IDR5.2t (+73% y-y) and IDR450b (-44% y-y) bottom line on much lower other incomes from one-off gains. UNSP’s rich valuation of 11.1x 2011 PE and negative average two-year growth are unattractive when compared to the sector’s 2011 PE of 13.1x and PEG of 1.0x (exhibit 6). Taking into account UNSP’s low 2011F ROE of 5.1%, our IDR325 TP assumes a reasonable de-rating to 10.0x 2011 PE. The stock is a HOLD at best in our view.
source: Bahana sekuritas
Despite having booked significant Domas-related restructuring one-off gains from in its 2010 results (60% of net income), Bakrie Sumatera Plantations (UNSP) only managed to register lackluster 2010 diluted EPS of IDR63.9 per share, down 1.27% y-y (exhibit 1). The inclusion of Domas allowed 2010 revenue to rise 29% y-y to IDR3,004b, allowing operating profit to come in at IDR850b (+81% y-y) and net profit to reach IDR806b (+218% y-y). In 4Q10, UNSP reported top line of IDR1,108b, up 46% q-q and 62% y-y, mainly on increased CPO sales and CPO average selling price, bringing 4Q10 operating profit to IDR282b, up just 20% q-q. Meanwhile, net profit reached IDR560b, up 283% q-q, but mostly coming from other incomes related to the Domas acquisition. We do not see this level of net income margin (i.e. 50.6% in 4Q10, up from 19.2% in 3Q10) as sustainable going forward.
Domas acquisition: Not an attractive deal
Having spent roughly IDR330b for the Domas acquisition (IDR110b equity portion and IDR220b on capex & working capital), UNSP management expects to have significant revenue expansion in 2014 when the utilization rate of Domas reaches 90%. However, this is not that exciting in our view for three reasons. First, UNSP’s margin will experience significant contraction by entering the upstream industry (exhibit 23), translating to significant revenue increase but much more subdued at the bottom line level. Second, we expect return on equity to stay low going forward as it did in 2010A ROE of 5%, which was lower than 2009A ROE of 10% (exhibit 13). Third, the impact of consolidated debt from Domas will continue to burden UNSP, as displayed by 2010 net gearing of 26.8%, up from 10.9% in 2009. UNSP earnings in the next few years will depend on its IDR3t debt restructuring result (exhibit 22).
Underperforming estates to persist
The Agri Resources B.V. (ARBV) acquisition (32k ha planted from 56k ha area) has a negative impact on the overall 2010 productivity of UNSP with FFB yield of 13.8, down 19% y-y, and 32% discount from the industry (exhibit 16). Note that UNSP’s estates are currently in their productive stage, with average age of 12 year old (exhibit 20). Thus, while we expect some improvement ahead, we believe productivity will still remain below industry average with unexciting long-term growth in matured area (exhibit 8,9 & 10).
Rich valuation coupled with low profitability
Considering UNSP’s high leverage, low productivity and low profitability, we reiterate our bearish view on this company. We forecast UNSP’s top line IDR5.2t (+73% y-y) and IDR450b (-44% y-y) bottom line on much lower other incomes from one-off gains. UNSP’s rich valuation of 11.1x 2011 PE and negative average two-year growth are unattractive when compared to the sector’s 2011 PE of 13.1x and PEG of 1.0x (exhibit 6). Taking into account UNSP’s low 2011F ROE of 5.1%, our IDR325 TP assumes a reasonable de-rating to 10.0x 2011 PE. The stock is a HOLD at best in our view.
source: Bahana sekuritas