Indonesian Crude Palm Oil Firms in Focus: Sampoerna Agro
The higher crude palm oil (CPO) price will have a positive impact on the corporate earnings of Indonesian CPO producers, including Sampoerna Agro. Benchmark palm oil futures for March 2017 delivery on the Bursa Malaysia Derivatives Exchange were at 3,161 ringgit (approx. USD $706) per ton at the end of last week, near a four and a half year high. However, not all analysts advise investors to purchase shares of Sampoerna Agro, a company that is listed on the Indonesia Stock Exchange.
MIDF Amanah Investment Bank Berhad expects the palm oil price to rise to 3,300 ringgit per ton in the first half of 2017 due to the impact of the El Nino weather phenomenon (that made its presence felt in 2015 and 2016). El Nino brings droughts to Southeast Asia and therefore the oil palm trees produce fewer CPO. However, in the second half of 2017 MIDF Amanah Investment Bank Berhad expects a correction in the palm oil price towards 2,800 ringgit per ton.
On the short term, palm oil prices will also get a boost from seasonal phenomenons. In Malaysia CPO production tends to fall more than 10 percent (month-on-month) in the last month of the year, while China is expected to see a sharp increase in palm oil demand ahead of Chinese New Year's celebrations (Imlek) on 28 January 2017.
In the first nine months of 2016 Sampoerna Agro's net profit reached IDR 25.51 billion (approx. USD $4 million), down 86.9 percent from IDR 194.94 billion in the same period one year earlier due to a decline in sales. Daewoo Securities said the company is still far away from the full-year net profit target that was set by Daewoo Securities and considering there is no expectation of a sudden and major improvement in its corporate earnings, the securities company set its recommendation for Sampoerna Agro stocks at "hold".
Although shares of Sampoerna Agro fell 0.26 percent to IDR 1,900 a piece on Monday (19/12), the palm oil producer's shares have climbed 11.76 percent so far this year.
Stock Quote Sampoerna Agro - SGRO:
Meanwhile, CPO production of Sampoerna Agro rose 37.6 percent to 48,241 tons in Q3-2016 on a quarter-on-quarter basis due to the diminishing impact of El Nino and a rise in the harvest of fresh fruit bunches (FFB).
BCA Sekuritas adds that the weakening ringgit and rupiah exchange rates amid monetary tightening in the USA will be an additional factor that should boost demand for palm oil (as the product becomes cheaper) and support the palm oil price on the short-term.
A negative matter is that on 12 August 2016 National Sago Prima, a subsidiary of Sampoerna Agro, was ordered by the Jakarta district court to pay a USD $76 million fine for its negligence related to fires on 3,000 hectares of its concessions in Riau (Sumatra) in January 2014.
Future Forecast Sampoerna Agro's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | |
| Revenues | 3,242.4 | 2,999.4 | 2,753.1 | 3,819.3 |
| Net Income | 340.3 | 247.6 | 98.6 | 110.0 |
| ROE (%) |
11.3 | 7.2 | 3.0 | 3.3 |
| P/E (x) | 11.7 | 13 | 36.6 | 32.8 |
in billion IDR rupiah unless otherwise stated
Source: Daewoo Securities (18/12/2016)