Indonesian Plantation Firms in Focus: Tunas Baru Lampung
The completion of its factory and being granted an additional sugar import quota is expected to boost corporate earnings of Tunas Baru Lampung, one of Indonesia’s leading producers of vegetable cooking oil (covering palm and coconut cooking oil). Furthermore, the company will feel the positive impact of rising crude palm oil (CPO) prices. Tunas Baru Lampung is part of the Sungai Budi Group, an Indonesia-based manufacturer and distributor of agricultural consumer products.
In mid-2014 Tunas Baru Lampung started to invest IDR 1.3 trillion (approx. USD $97 million) for the development of a sugar mill in Sumatra, appointing an affiliate of Thailand's Sutech Engineering Co Ltd as the main contractor for this project. The sugar mill, which is designed to have a sugar milling capacity of 8,000 tons of cane per day, will start operating fully by the end of the first quarter of 2017. Therefore, it will become the main engine of growth in terms of Tunas Baru Lampung corporate earnings in 2017, says Maybank Kim Eng Securities.
The Jakarta-based securities firm expects the company's sugar sales volume to rise by an additional 84,000 tons in 2017 due to the new sugar mill. This additional volume roughly equals IDR 882 billion (approx. USD $66 million) and would boost Tunas Baru Lampung's revenue by 13 percent. The new mill is established by Tunas Baru Lampung's subsidiary Adi Karya Gemilang and the raw material (cane) originates from its own 9,000 hectare-sized plantation.
Meanwhile, another positive factor that will impact positively on Tunas Baru Lampung's corporate earnings in 2017 is that it has been allowed (by the government) to import more sugar from abroad. The company will import a total of 100,000 tons of sugar in 2017. Indonesia needs to import sugar as domestic production of white crystal sugar is not enough to meet domestic demand.
Maybank Kim Eng Securities therefore advises investors to invest in shares of Tunas Baru Lampung, setting its target price at IDR 1,500 per share. By 12:30 pm local Jakarta time on Friday (13/01) shares of Tunas Baru Lampung were up 0.86 percent to IDR 1,170 a piece. Over the past 12 months, shares of the agricultural company have soared a whopping 134 percent.
Stock Quote Tunas Baru Lampung - TBLA:
Sudarmo Tasmin, Vice Director of Tunas Baru Lampung, recentlt stated that his company allocated between IDR 700 - 800 billion for capital expenditure (capex) in 2017. A large chunk of these funds will go to the development of its palm oil business in South Sumatra. A smaller portion will go to the sugar cane plantations and maintenance work for its new factory. The new sugar mill is the company's first factory.
Meanwhile RHB Securities Indonesia adds that the rising crude palm oil (CPO) price, the slightly weakening rupiah (versus the US dollar) and low minimum wage growth will impact positively on the earnings of Tunas Baru Lampung that derive from its palm oil business segment. It sees the CPO price rising in Q1-2017 but stabilizing thereafter due to an expected increase in palm oil production. The securities firm also expects the rupiah to weaken in the months ahead. However, this will actually make CPO shipments from Indonesia more attractive.
About low minimum wage growth, this is an important matter for Tunas Baru Lampung because plantation companies use a high amount of workers. Wages are estimated to account for 35 percent of the company's total operational costs. Provided minimum wage growth remains below 8.25 percent (y/y), then the company's balance sheets remain safe.
Future Projection Tunas Baru Lampung's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Net Revenue | 6,337.6 | 5,331.4 | 6,371.0 | 7,582.0 | 8,066.0 |
| Net Profit | 433.5 | 197.0 | 615.0 | 896.0 | 947.0 |
| EBITDA | 1,065.0 | 843.0 | 1,349.0 | 1,775.0 | 1,836.0 |
| P/E Ratio (x) | 14.4 | 31.6 | 10.1 | 6.9 | 6.6 |
| P/BV (x) | 2.5 | 2.2 | 1.8 | 1.5 | 1.3 |
in billion IDR, unless otherwise stated
Source: Maybank Kim Eng Securities (13/01/2017)