PP London Sumatra Indonesia

(Sept 11: IDR1,195)

MAINTAIN HOLD. London Sumatra’s (LSIP) 1H2019 earnings fell 95.3% y-o-y, mainly owing to a 15.6% decline in crude palm oil (CPO) ASP. Fresh fruit bunches nucleus production in 1H2019 remained stable (+3.2% y-o-y) and we expect higher production in 2H2019, as the company’s production has been 33.2% higher h-o-h on average in 2H for the last four years. CPO production in 1H2019 remained stable despite a 15.6% decline in CPO ASP; we expect higher production in 2H2019 coupled with better ASP. We anticipate 2020 earnings to rise 61.2% y-o-y to IDR475 billion ($46.6 million), owing to a potential CPO price hike (from RM2,100 per tonne in 2019 to RM2,250 per tonne in 2020) supported by the implementation of the B30 mandate. LSIP maintained capex budget of IDR500 billion for 2019, which will be used for infrastructure development, maintenance of plantations and replanting. LSIP currently trades at 16.7x 2020F PER. Price target of IDR1,200 based on 17.3x 2020F PER, or -0.5 standard deviation below its five-year mean. —