LSIP Strives Against Dynamic CPO Prices 20180516 NHKS Company Report (English)

  Dividend yield 2.1% 2.5% 4.1% 3.4%

  EBITDA 1,181 1,344 1,148 1,224 Net profit 594 764 642 709 EPS (IDR) 87 112 94 104

  1Q18. Besides, CPO selling prices also experienced the correction of 9.6%.

  To maintain the profitability level amid the uncertainties of CPO selling prices, LSIP is committed to becoming the low–cost producers by adopting the best management practices.

  Target Price of IDR1,380 We use an estimate P/E forward of 13.3x (1 SD lower than the 3–year average of 14.9x) to obtain the target price of December 2018. The target price implies 2018E P/E of 14.7x. Now, LSIP is traded at a 2018E P/E of 11.7x.

  2016/12A 2017/12A 2018/12E 2019/12E

  Sales 3,848 4,738 4,067 4,427

  Sales growth

  EPS growth

  Focus on Becoming the Most Efficient Producer amid Uncertainties LSIP experienced the decrease of 40.7% in sales from IDR1.46 trillion in

  BVPS (IDR) 1,121 1,190 1,253 1,321 EBITDA margin

  30.7% 28.4% 28.2% 27.7%

  NPM

  15.4% 16.1% 15.8% 16.0%

  ROE 7.9% 9.7% 7.7% 8.1% ROA 6.5% 8.0% 6.4% 6.6% ROIC 7.9% 9.7% 7.7% 8.1% P/E 20.0x 12.7x 11.7x 10.6x P/BV 1.6x 1.2x 0.9x 0.8x EV/EBITDA 10.5x 7.3x 6.2x 5.4x DPS (IDR)

  37 35 45 38

  1Q17 into IDR868 billion in 1Q18. It was attributable to the decline of 33% in the CPO production from 120 million tons in 1Q17 into 80 million tons in

  However, in long term, CPO prices are likely supported by the lagging growth in production due to the decline in new planting activity. The moratorium on new oil palm plantation likely avoids a long-term oversupply condition.

• 16.4%
• 62 21 797 6202, ext:138
• - 8.2% 23.1%
• - 14.2% 8.8%

  Agriculture Crude Palm Oil Bloomberg LSIP.IJ Reuters LSIP.JK Joni Wintarja

  Please consider the rating criteria & important disclaimer Company Report | May 16, 2018 PP London Sumatra Indonesia Tbk (LSIP) Strives Against Dynamic CPO Prices Buy Dec 2018 TP (IDR) 1,380 Consensus Price (IDR) 1,650 TP to Consensus Price

  vs. Last Price +25.5% Shares data

  Last Price (IDR) 1,100 Price date as of May 11, 2018 52 wk range (Hi/Lo) 1,560/1,095 Free float (%)

  40.4 Outstanding sh.(mn) 6,823 Market Cap (IDR bn) 7,573 Market Cap (USD mn) 542 Avg. Trd Vol - 3M (mn)

  12.73 Avg. Trd Val - 3M (bn)

  17.17 Foreign Ownership 11.4%

  joni.wintarja@nhsec.co.id

  CPO Moratorium Maintaining Oversupply CPO prices are estimated to remain volatile underlined by such global and fundamental uncertainties as weather conditions, hiking vegetable oils, fluctuating demand of major markets, and geopolitical uncertainties.

  PP London Sumatra Indonesia Tbk | Summary (IDR bn) Source: Company Data, Bloomberg, NHKS Research

  Share Price Performance YTD

• - 4.7% 28.7%
• - 16.0% 10.4%

  1M

  3M

  12M

  Abs. Ret. -22.5% -20.0% -14.7% -22.3% Rel. Ret. -16.3% -13.6% -6.3% -27.6%

  Domestic Economy: Sustainer of CPO Industry The CPO industry in 2018 is estimated to be sustained by the positive growth in the domestic economy along with Indonesia’s fiscal policy on the infrastructure sector and social securities, as well as the increment in the domestic consumption as Indonesia is the world’s second-biggest palm oil consumers.

  A Glance at LSIP LSIP know as “Lonsum” was founded in 1906 when Harrisons & Crossfield Plc, London– based general trading and plantation management services firm cultivated its first plantation situated near to Medan, Sumatera Utara.

  Now, LSIP furthers into one of the world leading plantation firms with the total core plantation areas of 115,695 hectares of which 85% consists of oil palm plantation, and the remaining 14% and 3% are rubber, cacao, and tea plantations. It currently operates 12 palm oil mills operating at the full capacity of 2.5 million fresh fruit bunch (FFB) per year. It’s commitment to safe and traced products is reflected in its continuous efforts in accomplishing Roundtable Sustainable Palm Oil (RSPO) and Indonesia Sustainable Palm Oil (ISPO) certificates. In 2017, its total RSPO certificates reached 240,000 tons or around 62% of its total CPO production.

  LSIP’s Competitiveness in ASEAN Although LSIP is estimated to experience the decline in the 2018’s profit, it has the second-highest net profit margin after First Resources Ltd. Besides, now, LSIP is traded at the cheapest valuation of 11,7x in ASEAN. Having robust trade balance with no debt, LSIP has the highest dividend yield of 4.1%.

  ASEAN CPO Plantation Company Market Cap Total Asset Net Profit Net Profit Dividend Company ROE P/E P/BV (USD mn) (USD mn) Growth Margin Yield

  LSIP 542 717 16.0% 15.8% 7.7% 11.7x 0.9x 4.1%

• AALI 2,004 1,835 11.3% 11.3% 11.7% 12.7x 1.4x 3.5%

  Malaysia

  Genting Plantations Bhd 2,066 2,085 3.3% 18.7% 7.7% 23.1x 1.9x 1.3%

• Kuala Lumpur Kepong Bhd 6,914 4,619 16.6% 4.8% 8.5% 28.0x 2.3x 2.0%
• IOI Corp Bhd 7,711 4,193 99.6% 5.3% 20.8% 20.3x 4.7x 2.0%

  Singapore

  Wilmar International Ltd 15,308 40,933 25.4% 2.8% 8.0% 12.5x 1.0x 2.2% Golden Agri-Resources Ltd 3,489 8,138 81.5% 1.0% 1.8% 48.1x 0.9x 3.9%

• First Resources Ltd 2,085 1,731 9.8% 21.3% 14.9% 15.1x 2.1x 2.1%

  Source: Bloomberg, NHKS research

  Performance Highlights LSIP Sales Breakdown | 1Q18 LSIP Quarterly Net Profit | 2015 - 2018

  Source: Company, NHKS Research Source: Company, NHKS Research

  

Malaysia Palm Oil Inventory (000’ tons) | 2016-2018 Malaysia Palm Oil Production Data (000’ tons) | 2016-2018

  Source: MPOB, Bloomberg, NHKS Research Source: MPOB, Bloomberg, NHKS Research

  LSIP CPO Sales Volume | 2015 - 2018 CPO CIF Rotterdam (IDR/kg) | 2011-2018

  Source: Bloomberg, NHKS Research Source: Company, NHKS Research

  Multiple Valuation Forward P/E Band | Last 3 years Dynamic Forward P/E band | Last 3 year

  Source: NHKS research Source: NHKS research

  Rating and target price update Target Price Revision Date Rating Target Price Last Price Consensus vs Last Price vs Consensus

  07/10/2017 Buy 1,970 (Dec 2017) 1,430 1,705 +37.7% +15.5% 10/12/2017 Buy 1,970 (Dec 2018) 1,440 1,700 +36.8% +15.9% 01/05/2018 Buy 1,540 (Dec 2018) 1,320 1,750 +16.7% 12.0%

• 05/16/2018 Buy 1,380 (Dec 2018) 1,100 1,650 +25.5% 16.4%
• Source: NHKS research, Bloomberg

  Analyst Coverage Rating Closing and Target Price

  Source: Bloomberg Source: NHKS research

  NH Korindo Sekuritas Indonesia (NHKS) stock ratings

  1. Period: End of year target price

  2. Rating system based on a stock’s absolute return from the date of publication : Greater than +15%

   Buy : -15% to +15%  Hold : Less than -15%  Sell

  Summary of Financials

DISCLAIMER

INCOME STATEMENT BALANCE SHEET

  

This report and any electronic access hereto are restricted and intended only for the clients and related entity of PT NH Korindo Sekuritas Indonesia. This

report is only for information and recipient use. It is not reproduced, copied, or made available for others. Under no circumstances is it considered as a selling

offer or solicitation of securities buying. Any recommendation contained herein may not suitable for all investors. Although the information here is obtained

from reliable sources, it accuracy and completeness cannot be guaranteed. PT NH Korindo Sekuritas Indonesia, its affiliated companies, respective employees,

and agents disclaim any responsibility and liability for claims, proceedings, action, losses, expenses, damages, or costs filed against or suffered by any person

as a result of acting pursuant to the contents hereof. Neither is PT NH Korindo Sekuritas Indonesia, its affiliated companies, employees, nor agents liable for

errors, omissions, misstatements, negligence, inaccuracy arising herefrom. All rights reserved by PT NH Korindo Securities Indonesia ^{LSIP Summary Last Price (IDR) 1,100}

^{Target Price (IDR) Dec 2018 1,380 2016/12A 2017/12A 2018/12E 2019/12E}

^{Analyst: Joni Wintarja Rating: Buy ROE 7.9% 9.7% 7.7% 8.1% ROA 6.5% 8.0% 6.4% 6.6% ROIC 7.9% 9.7% 7.7% 8.1% EBITDA/Equi ty 15.8% 17.1% 13.8% 13.9%}

^{In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E EBITDA/As s ets 12.9% 14.0% 11.4% 11.4%}

^{Sales 3,848 4,738 4,067 4,427 Ca s h Di vi dend (IDR bn) 252 239 306 257}

^{Growth (% y/y) -8.2% 23.1% -14.2% 8.8% Di vi dend Yi el d (%) 2.1% 2.5% 4.1% 3.4%}

^{COGS (2,737) (3,395) (2,943) (3,190) Pa yout Ra ti o (%) 40.5% 40.2% 40.0% 40.0%}

^{Gross Profit 1,111 1,343 1,124 1,237 DER 0.0% 0.0% 0.0% 0.0%}

^{Gross Margin 28.9% 28.3% 27.6% 27.9% Net Gea ri ng 0.0% 0.0% 0.0% 0.0%}

^{Opera ti ng Expens es (300) (384) (376) (409) LT Debt to Equi ty 0.0% 0.0% 0.0% 0.0%}

^{EBIT 811 958 749 828 Ca pi ta l i za ti on Ra ti o 0.0% 0.0% 0.0% 0.0%}

^{EBIT Margin 21.1% 20.2% 18.4% 18.7% Equi ty Ra ti o 80.8% 83.4% 82.8% 81.2%}

^{Depreci a ti on 370 386 399 396 Debt Ra ti o 0.0% 0.0% 0.0% 100.0%}

^{EBITDA 1,181 1,344 1,148 1,224 Fi na nci a l Levera ge 123.7% 120.0% 120.8% 123.2%}

^{EBITDA Margin 30.7% 28.4% 28.2% 27.7% Current Ra ti o 245.9% 520.9% 469.9% 542.7%}

^{Interes t Expens e - - - - Qui ck Ra ti o 156.7% 405.8% 378.7% 443.2%}

^{EBT 779 1,007 842 929 Ca s h Ra ti o 146.1% 392.4% 370.2% 428.4%}

^{Income Ta x (186) (243) (201) (222) Ca s h Convers i on Cycl e 59.9 49.0 64.4 48.6 Mi nori ty Interes t 1 1}

^{Net Profit 594 764 642 709 Tota l Sha res (mn) 6,823 6,823 6,823 6,823}

^{1 Pa r Va l ue (IDR) 100 100 100 100}

^{Growth (% y/y) -4.7% 28.7% -16.0% 10.4% Sha re Pri ce (IDR) 1,740 1,420 1,100 1,100}

^{Net Profit Margin 15.4% 16.1% 15.8% 16.0% Ma rket Ca p (IDR tn) 11.9 9.7 7.5 7.5 In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E}

^{Ca s h 1,141 1,633 2,073 2,577 Pri ce /Ea rni ngs 20.0x 12.7x 11.7x 10.6x}

^{Recei va bl es 82 56 48 89 Pri ce /Book Va l ue 1.6x 1.2x 0.9x 0.8x}

^{Inventori es 569 308 267 391 Pri ce/Sa l es 3.1x 2.0x 1.8x 1.7x}

^{Total Current Assets 1,920 2,168 2,632 3,265 PE/EPS Growth -4.2x 0.4x -0.7x 1.0x}

^{Fi xed As s ets 6,366 6,229 6,381 6,567 EV/EBITDA 10.5x 7.3x 6.2x 5.4x}

^{Other Non Current As s ets 546 471 426 475 EV/EBIT 15.3x 10.2x 9.5x 8.0x}

^{Total Assets 9,459 9,744 10,327 11,104 EV (IDR bn) 12,444 9,768 7,144 6,641}

^{Pa ya bl es 120 129 112 136 Sa l es CAGR (3-Yr) -2.4% 0.1% -1.0% 4.8%}

^{ST Debt - - - - EPS CAGR (3-Yr) -8.3% -5.9% 1.0% 6.1%}

^{Other Current Li a b. 661 288 449 466 Ba s i c EPS (IDR) 87 112 94 104 LT Debt - - - - Di l uted EPS (IDR) 87 112 94 104}

^{Other Non Current Li a b. 550 230 305 362 BVPS (IDR) 1,121 1,190 1,253 1,321}

^{Total Liabilities 1,813 1,622 1,776 2,092 Sa l es PS (IDR) 564 694 596 649}

^{Shareholders' Equity 7,646 8,122 8,551 9,013 DPS (IDR) 37 35 45 Net Income 594 764 642 709 DCF (IDR bn) 38 In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E Deprec & Amorti za ti on 370 386 399 396 NOPAT 617 727 570 630 Chg. In Worki ng Ca pi ta l 109 (120) 121 (88) +Depr./Amor. 370 386 399 396 CFO 1,073 1,030 1,161 1,017 -CAPEX (374) (293) (401) (581) Ca pex (374) (293) (401) (581) -Incr. (Decr.) i n Worki ng Ca p. 109 (120) 121 (88)}

^{CFI (364) (293) (358) (265) (Unl evered) FCFF 722 700 688 357}

^{Di vi dends Pa i d (252) (239) (306) (257) WACC Net Borrowi ng (PMT) - - - - Cos t of Debt (Ta x Adj.) 7.0% 6.3% 7.1% 7.1% CFF (293) (225) (306) (247) Cos t of Equi ty (COE) 9.2% 9.5% 9.7% 9.7% Net Changes in Cash 416 511 497 504 WACC (%) 9.2% 9.5% 9.7% 9.7% RIM Sprea d (FROE-COE) (%) -1.4% -0.1% -2.2% -1.9% Res i dua l Income (IDR) (108) (4) (190) (168)}

^{By Geography % Shareholders % Equi ty Cha rge 702 768 832 877}

^{Indones i a 88.6 Sa l i m Ivoma s Pra ta ma 59.5 EVA Uni ted Sta tes 7.5 Di mens i ona l Fund 2.2 Inves ted Ca pi ta l (IDR bn) 7,646 8,122 8,551 9,013 Fi nl a nd 1.0 Va ngua rd Group 1.3 ROIC-WACC (%) -1.4% -0.1% -2.2% -1.9% Ca na da 0.9 Bl a ckrock 0.9 EVA (IDR bn) (108) (4) (190) (168)}

  CASH FLOW STATEMENT DCF, RIM & EVA OWNERSHIP PROFITABILITY & STABILITY _{May 11, 2018}