Aug 3, 2010

CIMB targets BW Plantation at Rp950

CIMB Securities initiates with outperform and target price of Rp950 on PT BW Plantation Tbk (BWPT), based on 12x CY11 P/E, a 25% discount to our valuation for the market leader, AALI.
"We like BW Plantation for its strong production growth (5-year CAGR forecast of 22%), nearly double that of its closest peer, on the back of new plantings and higher-than-peers’ yields, and good estate management that combines modern mechanisation in harvesting with the old school way of upkeep that better preserves the environment," the research report released by CIMB on August 2 2010.
To top it off, given a more fragmented shareholding than peers and relatively attractive valuations, BW Plantation could potentially be an acquisition target if the industry consolidates over environmental issues for instance. This could be a mid-term probability. 
With 41,448ha of planted estates and 95,182ha of land bank,  CPO production of BW Plantation could grow by 22% CAGR over the next 5 years, the strongest among planters under our coverage. 
High-than-peers’ yields supported by good estate planning, best practices in upkeep and harvesting and mechanisation (which improves efficiency) should be sustainable when all estates are planted by 2015. 
BW Plantation is capable of producing 3 million tonnes of fresh fruit bunch (FFB) by 2021, in CIMB projection.  
By EV/ha, BW is valued at US$5,893, the lowest in our universe. EV/EBITDA of 6.9x is comparable to PT Sampoerna Agro Tbk (SGRO)’s while its P/E is the lowest in our universe. 
PEG valuations are 0.28x vs. a sector average of 0.45x. Using DCF (WACC 15.5%, BW Plantation should be worth Rp1, 374/share. Our target price is Rp950, based 12x CY11 P/E, pegged at a 25% discount to our valuation for AALI.

Disclosure: No position at the stock mentioned above.

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