Oct 6, 2010

CIMB targets Rp1,375 for BW Plantation

CIMB Securities has set a rise on price target of CPO player PT BW Plantation Tbk (BWPT) from Rp950 per share to Rp1,375 per share.
Based on a research report published today, CIMB uses discounted cash flow with a 20% discount to its NAV, implying 19.9x FY 2011 P/E and 12.3x FY 2012 P/E. The brokerage also maintains outperform call.
BW Plantation is seizing the opportunity of a buoyant bond market and a dearth of plantation-related bonds to raise a long term fixed rate bond.
If successful, BW Plantation enables to reduce its overall cost of debt, although this will be offset in the near term by higher negative carry. The bond will secure financing for its expansion plans.
"We believe BWPT's bonds issuance has a high chance of success with the potential yields at a 3.5-4.5% spread to GoI bonds, giving an effective rate of 10.5%-11.5%, which is lower than its present funding cost of some 13%.
Currently BWPT has 46,048 hectares of planted land and 95.182 hectares of land bank. The company has planted 5,000 ha Ytd. It is on the track to plant 10,000 hectares this year and if everything goes according the plan, BW should exhaust its land bank by 2015.
If BW Plantation's bonds exercise is successful, 70% of the proceeds will be used for expansion. Hence, it has sufficient funding to complete new planting until its land bank is exhausted.
August FFB production was 33,500 tons, down 5% MoM and up 30% YoY. Year to August, FFB production reached 237,000 tons, down 2% YoY. This forms 62% of CIMB's full year estimate.
"We expect 2H 2010 production to pick up and BW to reach its full-year target of 381,000 tons," the report said.
Today, BW Plantation has obtained pre-effective permit for bonds issuance from Capital Market and Supervisory Agency.

Disclosure: No position at the stock mentioned above. 

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