Company visit notes - Quick bites
The company is still in the midst of its estate improvement program (rehabilitation to improve yields). It intends to increase the group’s yields, especially at its problematic South Sumatran estates. This includes improving roads and infrastructure, housing and improving its spread over the non-contiguous land amongst its estates.
Management thinks that it could take an additional 2-3 years to complete the program,
given that the efforts were stalled in 2010 (owing to heavy rainfall). The company is looking to add 5,000 hectares of new plantings in 2011 (which is equivalent to an additional 6% of planted hectarage for oil palms) – which we think is relatively conservative vs. its peers’ aggressive expansion plans. Management defended its strategy as offering stable sustainable growth. The group currently has 40,000 hectares available for planting, which according to management, should help the company tide over during the two-year moratorium on deforestation. Elsewhere, we can expect the company to reclassify 2,000-2,500 hectares of new area as mature (+3.6% growth).
Capex at LonSum should come up to Rp700bn, which would be split equally between
planting costs (new plantings/replantings) and non-planting costs (mainly infrastructure work such as new housing)The company should benefit from its recent increase in free float (with the small divestment by Salim Ivomas Pratama (SIMP) down to 59.5% ownership – with a 5% reduction in tax rate, though this will only be assessed annually post the submission of the company’s tax filing.
source: Nomura securities dated 25 April 2011
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