FOCUS Plantation Sector Update 26 November 2014

Transcription

1 FOCUS XXX Company Update XX XXXXX 213 FOCUS Plantation Sector Update 26 November 214 Mandiri Sekuritas Analyst Hariyanto Wijaya, CFA, CFP, CPA The beginning of CPO price uptrend Drought in palm oil producing areas in Malaysia and Indonesia has finally started to curb FFB yield. This impact should continue till early 2Q15, slowing down FY15 CPO production growth. Stock usage ratios for eight major edible oils have now reached the lowest point in the past four years. We expect CPO price to rise 1% yoy in 215, with LSIP and SGRO being our choice for beneficiaries of this uptrend. Sector : Plantation OVERWEIGHT (formerly Neutral) The beginning of CPO price uptrend. We think CPO price is in the beginning of an uptrend pattern due to: 1) time-lagged impact of drought in 1Q14 starts to manifest since September 214, which should curb FY15F palm oil production by squeezing FY15 CPO world production growth to only 1.8mn tons (vs average annual growth of 2.9mn tons in the last five years). 2) Lower FY14/15F stock usage ratio of 8 major edible oils, which should favor edible oil prices. 3). Recovery in soybean price. Soybean price recovery. We think soybean price is in the rebound mode as 1) higher than expected soybean demand from China. 2) Brazil's and Argentine s FY15F soybean crops are partly jeopardized by unfavorable weather. Some major producing areas in Brazil and Argentine are still showing soil moisture deficits as of November. Re-emergence of the likeliness of El Nino. Weather forecasters forecast the likeliness of El Nino has increased recently. On its 18 November 214 report, the Australian weather forecaster has increased the probability of El Nino to happen to 7% and increase the El Nino warning from El Nino Watch to El Nino alert. Meanwhile, on its 17 November 214 report, the US weather forecaster predicts El Nino to happen in 2Q15. Manageable cost. The increase in minimum wages in 215 as a major cost component of plantation is relatively tame, only around 12%yoy. Among plantation companies under our coverage, LSIP has the lowest percentage increase in minimum wage at around 7.9%yoy (vs AALI at 12.1%yoy vs SGRO at 1.2%yoy) Time to accumulate oil palm plantation counters. The movement of palm oil plantation share prices tends to be in-line with the movement of CPO price. We think now is the beginning of a CPO price uptrend, therefore we think it s time to accumulate oil palm plantation counters. Our top picks are LSIP and SGRO. LSIP due to :1) liquid plantation counter. 2) ability to manage cost in FY15. SGRO due to: 1) its EV/ha is as cheap as the cost of new planting. 2) recovery in SGRO s profitability should make SGRO to deserve re-rating. Closing Price Target Market PER EV/EBITDA PBV EV/ha EV/ha ROAE Company Rec. 26-Nov-14 price cap FY14F FY15F FY14F FY15F FY14F FY15F planted Mature FY14F FY15F (Rp) (Rp) (US$ m) (US$) (US$) AALI IJ Buy 24,175 3,8 3, ,414 16, % 25.8% LSIP IJ Buy 2, 2,7 1, ,57 1, % 17.7% SGRO IJ Buy 2,28 3, ,497 9, % 16.1% Weighted average ,433 14,6 Please see important disclosure at the back of this report Page 1 of 21

2 FOCUS Plantation Sector Update 26 November 214 CPO price outlook The beginning of CPO price uptrend We have a view that CPO price is in the beginning of an uptrend phase, considering: 1) CPO price has an annual cycle to start to rebound since the month of July until November. We think CPO price has reached its FY14 bottom in August ) time lag impact of drought in 1Q14 in palm oil producing areas in Malaysia and Indonesia starts to manifest since September 214 and should curb FY15F CPO production. 3) Lower stock usage ratio of CPO in FY14/15F (17.8% in FY13/14 vs 16.3% in FY14/15F) should favor CPO price. 4) Lower stock usage ratio of major edible oils in FY14/15F (13.7% in FY13/14 vs 13.% in FY14/15F) should favor edible oil prices. 5) soybean price recovery. FIGURE 1. CPO PRICE TEND TO COMMENCE ITS UPTREND BETWEEN JULY AND NOVEMBER Source: Bloomberg, Mandiri Sekuritas Time lag impact of drought in 1Q14 should curb FY15F CPO production A drought has 3 cycles of impact to palm oil production in curbing CPO production, i.e. 6 months (bunch failure), 1-12 months (floral abortion) and months (sex differentiation). We think the time lag impact of the drought in 1Q14 in palm oil producing areas in Malaysia and Indonesia has started to manifest since September 214 and should curb FY15F CPO production, which should boost CPO price. FIGURE 2. TIME LAGGED IMPACT OF DROUGHT IN 1Q14 STARTS TO KICK IN SINCE SEP 14 AND CURB FY15F CPO PRODUCTION ton/ha 2. Malaysia FFB yield average Time -lagged impact of drought in 1Q14 start to kick in since Sep'14 Jan Source: MPOB Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Please see important disclosure at the back of this report Page 2 of 21

3 FOCUS Plantation Sector Update 26 November 214 FIGURE 3. MOST PARTS OF MALAYSIA SUFFERED SEVERE LACK OF RAINFALL (<1MM PER MONTH) IN 1Q14 Source: Malaysian Meteorological Department FIGURE 4. SOME PARTS OF INDONESIA SUFFERED LACK OF RAINFALL IN 1Q14 Source: Indonesian Meteorological Department FIGURE 5. CASE STUDY: LACK OF RAINFALL IN MID 212 DECREASED FY13 SUMATRA FFB PRODUCTION Decrease in production start to manifest after 6 months water defisit ( % of normal rainfall) 14% (YTD FFB prod yoy growth %) 3% 12% 15% 1% % 8% 6% The impact of water deficit would start to manifest in decrease in production after 6 months (although there were significant rainfall in between) -15% -3% Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Average rainfall in Sumatera (in % of normal) (LHS) Astra Agro's Sumatera Year-to-date FFB production yoy growth (RHS) Source: Astra Agro Lestari, Mandiri Sekuritas analysis Dec-13 Please see important disclosure at the back of this report Page 3 of 21

4 FOCUS Plantation Sector Update 26 November 214 FIGURE 6. CASE STUDY: LACK OF RAINFALL IN MID 211 DECREASED SABAH (MALAYSIA) FY12 CPO PRODUCTION Decrease in production start to manifest after 6 months water defisit ( % of normal rainfall) (YTD CPO prod yoy growth %) 19% 3% 16% 13% 1% 7% 4% 1% The impact of water deficit would start to manifest in decrease in production after 6 months (although there were significant rainfall in between) 15% % -15% -3% Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Average rainfall in Sabah (Malaysia) (in % of normal) (LHS) Oct-12 Nov-12 Dec-12 Sabah (Malaysia) Year-to-date CPO production yoy growth (RHS) Time lag impact of lack of rainfall in FY11 to FY12 CPO production 5,9 5,6 decrease 5% 5,3 5, Sabah CPO production (' tons) Source: Malaysian Palm Oil Board (CPO production), Mandiri Sekuritas analysis Low palm oil inventory in China As of the end of October 214, China s palm oil inventory has decreased by 6% from its peak in February 214. We think CPO price should increase when China replenishes its palm oil inventory. FIGURE 7. LOW PALM OIL INVENTORY IN CHINA ths tons 1,6 Palm oil inventory at China domestic ports 1, Source: Cofeed Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Please see important disclosure at the back of this report Page 4 of 21

5 FOCUS Plantation Sector Update 26 November 214 Lower FY14/15 stock-usage ratio of CPO and edible oils should boost prices Stock usage ratio of CPO is expected to be lower in FY14/15F, which should boost CPO price in FY15F. Meanwhile, stock usage ratio of 8 major edible oils is also expected to decrease in FY14/15F, which should favor edible oil prices, including CPO price. FIGURE 8. LOWER STOCK USAGE RATIO OF CPO IN FY14/15F SHOULD BOOST CPO PRICE Palm oil Year period starts from Oct to Sept FY11/12 FY12/13 FY13/14 FY14/15F Opening stocks Production Imports Exports Consumption Ending stocks Stock usage ratio 2.8% 18.% 17.8% 16.3% Implied stock outstanding period (in days) Source: Oil world FIGURE 9. FY14/15 SOY OIL S STOCK USAGE RATIO IS RELATIVELY UNCHANGED Soybean oil Year period starts from Oct to Sept 11/12 12/13 13/14 14/15F Opening stocks Production Imports Exports Consumption Ending stocks Stock usage ratio 1.% 9.8% 9.1% 9.2% Implied stock outstanding period (in days) Source: Oil world FIGURE 1. LOWER FY14/15F STOCK USAGE RATIO OF EDIBLE OILS SHOULD FAVOR PRICES 8 Major edible oils Year period starts from Oct to Sept 11/12 12/13 13/14 14/15F Opening stocks Production Imports Exports Consumption Ending stocks Stock usage ratio 14.4% 13.9% 13.7% 13.% Implied stock outstanding period (in days) Source: Oil world Please see important disclosure at the back of this report Page 5 of 21

6 FOCUS Plantation Sector Update 26 November 214 El Nino outlook El Nino is likely to happen in 2Q15 Weather forecasters think the likeliness of El Nino has increased recently. On its 18 November 214 report, the Australian weather forecaster has increased the probability of El Nino to happen to 7%, and the El Nino warning also went up from El Nino Watch to El Nino alert. Meanwhile, on its 17 November 214 report, the US weather forecaster predicts El Nino to happen in 2Q15. FIGURE 11. US WEATHER FORECASTER PREDICTS EL NINO TO HAPPEN IN 2Q15 (EL NINO= NINO INDEX GREATER THAN OR EQUAL TO +.5 C) WITH PROBABILITY OF 58% FIGURE 12. SOUTHERN OSCILLATION INDEX. SUSTAINED NEGATIVE VALUES BELOW 8 MAY INDICATE EL NIÑO EVENT. Source: NOAA Source: Australian Bureau of Meteorology Soy price outlook: more optimistic Speculators net positions show their optimism in soybean and soy oil prices Based on historical pattern on CFTC s commitments of traders, the direction of speculators net position (net long or net short position) on soy and soy oil contracts could represent as a leading indicator for soy and soy oil price direction. Speculators have turned bullish on soybean price as speculators net position has turned to net long since end of October 214. Meanwhile, speculators become more bullish on soy oil as they keep increasing their net long position on soy oil. FIGURE 13. SPECULATORS TURN BULLISH ON SOYBEAN PRICE FIGURE 14. SPECULATORS BECOME MORE BULLISH ON SOY OIL PRICE 35, 18 12, , , 55 15, , 4 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul , Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul , 35 3 CFTC Soybean non-commercial net position (contract) (LHS) Soybean price (USD/bushel) (RHS) CFTC Soybean oil non-commercial net position (contract) (LHS) Soy oil price (USD/pound) (RHS) Source: Commodity Futures Trading Commission Source: Commodity Futures Trading Commission Please see important disclosure at the back of this report Page 6 of 21

7 FOCUS Plantation Sector Update 26 November 214 US soybean s stock usage and inventory in FY 14/15F is better than in FY6/7 Sizable increase in harvested area of soybean in FY14/15F (harvested area: FY13/14=3,859ha vs FY14/15=33,752ha) is one of the main reasons of abundant soybean production in the US for period FY14/15. Although the all-time high US soybean production record is in FY14/15, US soybean s stock usage ratio and ending inventory in FY14/15F are still far better than in FY6/7. Soybean harvesting period in the US is from September to November. FIG 15. US SOYBEAN S STOCK USAGE AND INVENTORY IN FY 14/15F IS BETTER THAN IN FY6/7 US Soybean (' MT) FY6/7 FY13/14 FY14/15F Production 87,1 91,389 16,87 Source: USDA Crush 49,198 47,192 48,171 Domestic consumption 4,275 2,655 3,85 Total domestic consumption 53,473 49,847 51,256 Ending stocks 15,617 2,53 12,259 Stock usage ratio 29.2% 5.% 23.9% FIGURE 16. DURING HIGH STOCK USAGE RATIO IN FY6/7, SOYBEAN PRICE REACHED ITS BOTTOM IN SEP 6 FIGURE 17. DURING HIGH STOCK USAGE RATIO IN FY14/15F, WE ESTIMATE SOYBEAN PRICE REACHED ITS BOTTOM IN SEP 14 Source: Bloomberg Source: Bloomberg CPO price assumptions We fine tune our CPO price assumptions In order to factor in recent conditions, we fine tune our CPO price assumptions. FIGURE 18. FINE TUNING OUR CPO PRICE ASSUMPTIONS (MYR/ton) FY11 FY12 FY13 FY14F FY15F FY16F Average Malaysia CPO price 3,274 2,866 2,377 2,45 2,7 2,7 Spot CPO price, 25 November 214 2,187 Average CPO price YTD 2,443 Source: Bloomberg, Mandiri Sekuritas Please see important disclosure at the back of this report Page 7 of 21

8 FOCUS XXX Company Update XX XXXXX 213 FOCUS Astra Agro Lestari Company Update 26 November 214 Mandiri Sekuritas Analyst Hariyanto Wijaya, CFA, CFP, CPA Sector : Plantation BUY Current Price Rp24,175 Price Target Rp3,8 (+27.4%) 52-wk range Rp29,85 - Rp19,25 Stock Data Bloomberg Code AALI IJ Mkt.Cap (Rp bn/us$ mn) 38,69 / 3,127 Issued Shares (mn) 1,575 Avg. Daily T/O (Rp bn/us$ mn) 42./3.4 Major shareholder Astra International 79.7% Public 2.3% EPS consensus Mansek Cons Diff 214F 1,72. 1, F 2,55.5 1, F 2, , Share price performance 3m 6m 12m Absolute (%) (6.5) (1.) 11.7 Relative to JCI (%) (6.2) (13.4) (9.5) Steady growth Newly mature area and additional palm oil mill capacity of 115 tons FFB per hour in 215 from 2 new mills and 1 expanded mill (vs current of 1,325 tons FFB per hour) should enable AALI to book steady CPO production growth in FY15F, especially from FFB from external parties. Meanwhile, we view that CPO price is in the uptrend mode and we think AALI is a good proxy to monetize the uptrend. The beginning of CPO price uptrend. We think CPO price is in the beginning of an uptrend pattern due to: 1) time-lagged impact of drought in 1Q14 starts to manifest since September 214, which should curb FY15F palm oil production by squeezing FY15 CPO world production growth to only 1.8mn tons (vs average annual growth of 2.9mn tons in the last five years). 2) Lower FY14/15F stock usage ratio of 8 major edible oils, which should favor edible oil prices. 3). Recovery in soybean price. Steady volume production growth. There would be additional palm oil mill capacity of 115 ton FFB per hour in 215 from the commissioning of 2 new palm oil mills in East Kalimantan and South East Sulawesi and 1 extended mill in Aceh. Newly mature area and additional mill capacity should enable AALI to book steady growth in 215 CPO production, especially from FFB from external parties which is needed to meet the minimum utilization rate of new mills. FINANCIAL SUMMARY Entering Joint Venture in refinery with KLK. AALI acquired 5% stake in PT Kreasijaya Adhikarya, a subsidiary of KLK, for Rp75bn (around US$6mn). On top of Rp75bn, AALI would contribute Rp296bn as a shareholder s loan in Kreasijaya s balance sheet. Post acquisition, Kreasijaya would be jointly controlled by two major shareholders, i.e. AALI and KLK. Kreasijaya has a refinery with processing capacity of 2, tons of CPO in Dumai, Sumatera (the same capacity as AALI s current refinery in Sulawesi, which was built with total cost of US$7mn). Kreasijaya s refinery is still in commissioning process and estimated to start contributing in FY15F. Reiterate Buy. We fine-tune our assumptions and reiterate Buy recommendation on AALI with revised TP of Rp3,8 (TP is based on target PE of 15.x on FY15F EPS) as we think AALI is a good proxy to monetize the CPO price uptrend. YE Dec (Rp Bn) 212A 213A 214F 215F 216F EBITDA 3,956 3,574 4,51 5,348 6,11 Net Profit 2,41 1,81 2,79 3,237 3,646 Fully-diluted EPS (Rp) 1,531 1,144 1,72 2,55 2,315 Fully-diluted EPS growth (%).2 (25.3) P/E Ratio (x) EV/EBITDA (x) P/B Ratio (x) Dividend Yield (%) ROAE (%) Source: Company ( ), Mandiri Sekuritas ( ) Please see important disclosure at the back of this report Page 8 of 21

9 FOCUS Astra Agro Lestari Company Update 26 November 214 FIGURE 19. SALES BREAKDOWN, 214F AALI - At a Glance FIGURE 2. OPERATING PROFIT BREAKDOWN, 214F Palm products and Olein 99% Others 1% Palm products and olein, 1% FIGURE 21. NUCLEUS OIL PALM PLANTED AREA (Ha) 25, 2, 15, 1, 5, FY11 FY12 FY13 FY14F FY15F FY16F FIGURE 22. PROFITABILITY COMPARISONS, 214F 4% 35% 3% 25% 2% 15% 1% 5% % AALI LSIP SGRO Mature Immature Gross margin Operating margin Net margin FIGURE 23. EPS GROWTH TREND FIGURE 24. LEVERAGE TREND (Rp) 2,5 2, 1,5 1, 5 (%) (5) (%) (5) (1) (15) (2) (25) (3) (x) 25, 2, 15, 1, 5, Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 EPS EPS Growth [RHS] Net Debt/Equity (NDE) Interest Cover [RHS] Please see important disclosure at the back of this report Page 9 of 21

10 FOCUS Astra Agro Lestari Company Update 26 November 214 FIGURE 25. OPERATIONAL STATISTICS HISTORICAL AND ASSUMPTIONS Key variables FY11A FY12A FY13A FY14F FY15F FY16F Average foreign exchange (Rp/US$) 8,776 9,38 1,452 11,832 11,95 11,95 Volume Nucleus' FFB production (' tons) 3,499 4,3 3,71 4,74 4,196 4,467 FFB from external parties (' tons) 2,119 2,621 3,179 3,74 3,968 4,346 Total processed FFB (' tons) 5,689 6,625 6,889 7,814 8,164 8,813 % FFB from external to total processed 37% 4% 46% 48% 49% 49% CPO production volume (' tons) 1,268 1,476 1,539 1,727 1,84 1,948 CPO sales volume (' tons) 1,255 1,424 1,577 1,48 1,232 1,12 Olein sales volume (' tons) ASP Malaysia-based CPO price (MYR/ton) 3,274 2,866 2,377 2,45 2,7 2,7 AALI's CPO ASP (Rp/kg) - net of VAT 7,576 7,322 7,277 8,18 9,24 9,24 Nucleus' cost per ha (Rp mn) Financials (Rp bn) Revenue 1,773 11,564 12,675 16,632 21,29 24,651 Gross profit 3,935 4,357 4,82 5,348 6,482 7,385 Operating profit 3,196 3,454 3,5 3,852 4,66 5,189 Net profit 2,46 2,41 1,81 2,79 3,237 3,646 EPS (Rp) Mandiri Sekuritas 1,528 1,531 1,144 1,72 2,55 2,315 Consensus 1,645 1,812 1,944 Difference (%) Gross margin (%) Operating margin (%) Net margin (%) Source: Company, Mandiri Sekuritas Please see important disclosure at the back of this report Page 1 of 21

11 FOCUS Astra Agro Lestari Company Update 26 November 214 Astra Agro Lestari Profit & Loss YE Dec (Rp Bn) 212A 213A 214F 215F 216F Revenue 11,564 12,675 16,632 21,29 24,651 Gross Profit 4,357 4,82 5,348 6,482 7,385 Oper. Profit 3,454 3,5 3,852 4,66 5,189 EBITDA 3,956 3,574 4,51 5,348 6,11 Net Interest (7) (54) (83) (83) (83) Interest Expense (29) (72) (11) (11) (11) Interest Income Forex Losses/Gains (1) (444) Net Other Pre-Tax Profit 3,525 2,65 3,867 4,621 5,25 Income Tax (1,5) (72) (1,5) (1,21) (1,353) Others Minority Interests Net Profit 2,41 1,81 2,79 3,237 3,646 Cash Flow YE Dec (Rp Bn) 212A 213A 214F 215F 216F Operating Profit 3,454 3,5 3,852 4,66 5,189 Net Interest (7) (54) (83) (83) (83) Depr & Amort Other expenses/income Other Gain / Loss Tax (1,5) (72) (1,5) (1,21) (1,353) Chg in Working Capital (23) 46 (75) 131 (5) Other Oper. Cash Flow (11) (12) (153) (183) (26) Oper. Cash Flow 2,684 3,275 2,653 4,11 4,462 Capital Expenditure (2,694) (2,694) (73) (2,95) (2,151) FCF (OPCF after Capex) (1) 581 1,95 2,15 2,311 Other Investing CF (1) (58) 328 (65) (5) CF From Investing (2,794) (3,22) (375) (2,16) (2,21) Net Chg in Debts 972 1,751 Equity Funds Raised 97 Dividend (1,521) (1,33) (968) (1,456) (1,74) Other Financing CF CF From Financing (499) 852 (816) (1,273) (1,534) Non-Recur. Inc (Exp) (1) (444) Extraord. Inc(Exp) Net Change in Cash (61) 481 1, Cash at beginning ,172 2,849 Cash at End ,172 2,849 3,575 Valuation YE Dec 212A 213A 214F 215F 216F Balance Sheet YE Dec (Rp Bn) 212A 213A 214F 215F 216F Cash & ST Investment ,172 2,849 3,575 Acct. Receivable Inventory 1, ,41 1,771 2,71 Others Current Assets 1,78 1,692 4,38 5,159 6,287 Investments Fixed Assets 9,392 11,468 11,493 12,817 14,116 Others 13,557 16,758 17,133 19,293 21,494 Total Assets 12,42 14,963 17,34 19,573 22,81 Curr. Liabilities 2,61 3,759 3,934 4,52 4,892 Acct. Payable ,28 1,427 ST Borrowings 972 2,152 2,152 2,152 2,152 Others 1, ,142 1,313 Long-Term Liabilities Long-Term Payable Others Total Liabilities 3,54 4,695 4,874 5,449 5,845 Shareholder s Equity 9,365 1,268 12,161 14,124 16,236 Key Ratios YE Dec 212A 213A 214F 215F 216F Growth (% YoY) Sales EBIT 8.1 (13.) EBITDA 12.2 (9.7) Net Profit.2 (25.3) Profitability (%) Gross Profit Margin Oper. Margin EBITDA Margin Net Margin ROAA ROAE Leverage Net Debt / Equity (%) (.2) (4.9) (8.8) EBITDA/Gross Int. (x) Per Share Data (Rp) EPS 1,531 1,144 1,72 2,55 2,315 CFPS 1,74 2,79 1,685 2,61 2,834 BVPS 5,734 6,283 7,388 8,519 9,729 DPS ,15.1 PER (x) EV/EBITDA (x) P/BV (x) P/CF (x) Dividend Yield (%) Please see important disclosure at the back of this report Page 11 of 21

12 FOCUS XXX Company Update XX XXXXX 213 FOCUS London Sumatra Indonesia Company Update 26 November 214 Mandiri Sekuritas Analyst Hariyanto Wijaya, CFA, CFP, CPA Sector : Plantation BUY Current Price Rp2, Price Target Rp2,7 (+35.%) 52-wk range Rp2,48 - Rp1,47 Stock Data Bloomberg Code LSIP IJ Mkt.Cap (Rp bn/us$ mn) 13,646 / 1,121 Issued Shares (mn) 6,823 Avg. Daily T/O (Rp bn/us$ mn) 49.9/4.1 Major shareholder Salim Ivomas Pratama 59.5% Public 4.5% EPS consensus Mansek Cons Diff 214F F F Share price performance 3m 6m 12m Absolute (%) 5. (11.5) 14.9 Relative to JCI (%) 5.2 (14.9) (6.3) The lowest percentage increase in minimum wage The location of LSIP s oil palm plantation is its competitive advantage in FY15F compared to AALI and SGRO because of the lowest percentage increase in FY15 for minimum wage by only around 7.9%yoy. Meanwhile, further recovery in purchased FFB volume from external parties in FY15F should bring additional net profit to LSIP. We reiterate Buy on LSIP with revised TP: Rp2,7. The beginning of CPO price uptrend. We think CPO price is in the beginning of uptrend pattern due to: 1) time-lagged impact of drought in 1Q14 starts to manifest since September 214, which should curb FY15F palm oil production by squeezing FY15 CPO world production growth to only 1.8mn tons (vs average annual growth of 2.9mn tons in the last five years). 2) Lower FY14/15F stock usage ratio of 8 major edible oils, which should favor edible oil prices. 3). Recovery in soybean price. The lowest percentage increase in minimum wage in FY15. LSIP s oil palm plantations are located in North Sumatera (38% of total), South Sumatera (43% of total) and East Kalimantan (19% of total), where the percentage of minimum wage increase in FY15 is around 7.9%yoy, which is lower than AALI's (+12.1%yoy), SGRO's (+1.2%yoy) and national (+13.2%yoy). We think LSIP s lowest percentage of minimum wage increase in FY15 among FINANCIAL SUMMARY Indonesian plantation companies should make LSIP able to gain competitive advantage in term of cost structure. Recovery in purchased FFB volume from external parties. After purchased FFB volume from external parties decreased by 29.7%yoy in FY13, LSIP s purchased FFB volume starts to recover in 214. We estimate purchased FFB to increase further by 13.6%yoy to 654ths tons in FY15F. Although profitability from FFB from external parties only generated gross margin around 15%, it still generated additional net profit to LSIP. Reiterate Buy. We fine-tune our assumptions and reiterate Buy recommendation on LSIP with revised TP of Rp2,7 (TP is based on target PE of 13.5x on FY15F EPS). LSIP is our Top pick in plantation sector as 1) we think LSIP can manage its costs effectively. 2) LSIP is a good proxy to monetize the CPO price uptrend. YE Dec (Rp Bn) 212A 213A 214F 215F 216F EBITDA 1,57 1,32 1,63 2,132 2,349 Net Profit 1, ,378 1,528 Fully-diluted EPS (Rp) Fully-diluted EPS growth (%) (34.4) (31.1) P/E Ratio (x) EV/EBITDA (x) P/B Ratio (x) Dividend Yield (%) ROAE (%) Source: Company ( ), Mandiri Sekuritas ( ) Please see important disclosure at the back of this report Page 12 of 21

13 FOCUS London Sumatra Indonesia Company Update 26 November 214 LSIP - At a Glance FIGURE 26. SALES BREAKDOWN, 214F FIGURE 27. OPERATING PROFIT BREAKDOWN, 214F Palm products 9% Palm products 97% Rubber 6% Seed 2% Others 1% Seed 3% Rubber % FIGURE 28. NUCLEUS OIL PALM PLANTED AREA (Ha) 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, FY11 FY12 FY13 FY14F FY15F FY16F FIGURE 29. PROFITABILITY COMPARISONS, 214F 4% 35% 3% 25% 2% 15% 1% 5% % AALI LSIP SGRO Gross margin Operating margin Net margin Mature Immature FIGURE 3. EPS GROWTH TREND FIGURE 31. LEVERAGE TREND (Rp) (%) (2) (4) (6) (%) (2) (4) (6) (x) Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 EPS EPS Growth [RHS] Net Debt/Equity (NDE) Interest Cover [RHS] Please see important disclosure at the back of this report Page 13 of 21

14 FOCUS London Sumatra Indonesia Company Update 26 November 214 FIGURE 32. LSIP HAS THE LOWEST PERCENTAGE OF INCREASE IN MINIMUM WAGE IN 215 BY AROUND 7.9%YOY % increase in minimum wage in FY15 Source: Company, Government of Indonesia AALI LSIP SGRO % increase in minimum wage in FY15 in ha % to total planted % increase in minimum wage in FY15 in ha % to total planted % increase in minimum wage in FY15 % to total Region in ha planted North Sumatera 7.91% %.% 34,167 38% 3.% %.% South Sumatera 8.15% %.% 39,122 43% 3.5% 42,64 57% 4.6% Aceh 8.57% 11,7 5%.4% %.% %.% Riau 1.47% 42,3 19% 2.% %.% %.% Jambi 13.83% 5, 2%.3% %.% %.% West Kalimantan 17.3% %.% %.% 12,952 17% 3.% Central Kalimantan 1.% 53, 24% 2.4% %.% 19,429 26% 2.6% South Kalimantan 15.43% 28,5 13% 2.% %.% %.% East Kalimantan 7.41% 39,3 18% 1.3% 17,418 19% 1.4% %.% West Sulawesi 18.25% 23,8 11% 1.9% %.% %.% Central Sulawesi 2.% 2,3 9% 1.8% %.% %.% Total planted oil palm (ha) 223,9 1% 9,77 1% 74,445 1% Weighted average wage increase in FY % 7.9% 1.2% average increase in minimum wage in 215F (regional) Sumatera 12.7% Java Bali 11.% Kalimantan 12.5% Sulawesi 16.9% Papua Maluku 12.3% National 13.2% Please see important disclosure at the back of this report Page 14 of 21

15 FOCUS London Sumatra Indonesia Company Update 26 November 214 FIGURE 33. OPERATIONAL STATISTICS - HISTORICAL AND ASSUMPTIONS FY11A FY12A FY13 FY14F FY15F FY16F Key variables Average foreign exchange (Rp/US$) 8,776 9,38 1,452 11,832 11,95 11,95 Volume Palm oil Nucleus' FFB production (' tons) 1,291 1,315 1,25 1,441 1,573 1,71 FFB from external parties (' tons) Total processed FFB (' tons) 1,923 1,989 1,728 2,17 2,227 2,372 % FFB from external to total processed 33% 34% 28% 29% 29% 28% CPO production volume (' tons) CPO sales volume (' tons) Rubber Rubber production (' tons) Rubber sales (' tons) Seeds sales volume (in million seeds) ASP Malaysia-based CPO price (MYR/ton) 3,274 2,866 2,377 2,45 2,7 2,7 LSIP's CPO ASP (Rp/kg) - net of VAT 7,542 7,376 7,152 8,17 8,923 8,923 Rubber price (US$/ton) (RG1 CMDTY) 4,814 3,377 2,79 1,94 1,7 1,9 LSIP's rubber ASP (Rp/kg) 42,78 31,46 27,857 22,954 2,315 22,75 Seeds sales price (US$/seed) Nucleus' cost per ha (Rp mn) Financials (Rp bn) Revenue 4,687 4,212 4,134 4,682 5,644 6,34 Gross profit 2,362 1,681 1,253 1,699 2,282 2,51 Operating profit 2,6 1,324 1,26 1,316 1,816 2,1 Net profit 1,72 1, ,378 1,528 EPS (Rp) Mandiri Sekuritas Consensus Difference (%) Gross margin (%) Operating margin (%) Net margin (%) Source: Company, Mandiri Sekuritas Please see important disclosure at the back of this report Page 15 of 21

16 FOCUS London Sumatra Indonesia Company Update 26 November 214 London Sumatra Indonesia Profit & Loss YE Dec (Rp Bn) 212A 213A 214F 215F 216F Revenue 4,212 4,134 4,682 5,644 6,34 Gross Profit 1,681 1,253 1,699 2,282 2,51 Oper. Profit 1,324 1,26 1,316 1,816 2,1 EBITDA 1,57 1,32 1,63 2,132 2,349 Net Interest Interest Expense (4) (3) (3) (3) (3) Interest Income Forex Losses/Gains Net Other (37) (73) (73) (73) (73) Pre-Tax Profit 1, ,287 1,788 1,982 Income Tax (257) (228) (295) (41) (454) Others Minority Interests Net Profit 1, ,378 1,528 Cash Flow YE Dec (Rp Bn) 212A 213A 214F 215F 216F Operating Profit 1,324 1,26 1,316 1,816 2,1 Net Interest Depr & Amort Other expenses/income (37) (73) (73) (73) (73) Other Gain / Loss Tax (257) (228) (295) (41) (454) Chg in Working Capital (37) Other Oper. Cash Flow Oper. Cash Flow 1,324 1,137 1,292 1,717 1,876 Capital Expenditure (819) (55) (573) (563) (57) FCF (OPCF after Capex) ,155 1,369 Other Investing CF (153) CF From Investing (972) (494) (57) (56) (54) Net Chg in Debts Equity Funds Raised 6 Dividend Other Financing CF (624) (491) (268) (357) (512) CF From Financing (617) (491) (268) (357) (512) Non-Recur. Inc (Exp) Extraord. Inc(Exp) Net Change in Cash (266) Cash at beginning 2,64 1,799 1,951 2,45 3,26 Cash at End 1,798 1,951 2,45 3,26 4,65 Valuation YE Dec 212A 213A 214F 215F 216F Balance Sheet YE Dec (Rp Bn) 212A 213A 214F 215F 216F Cash & ST Investment 1,799 1,951 2,45 3,26 4,65 Acct. Receivable Inventory Others Current Assets 2,594 2,547 3,47 3,957 4,862 Investments Fixed Assets 4,474 4,73 4,989 5,236 5,45 Others 6,54 6,997 7,567 8,127 8,632 Total Assets 7,552 7,723 8,55 9,66 1,731 Curr. Liabilities Acct. Payable ST Borrowings Others Long-Term Liabilities Long-Term Payable Others Total Liabilities 1,272 1,127 1,225 1,4 1,495 Shareholder s Equity 6,28 6,595 7,28 8,26 9,235 Key Ratios YE Dec 212A 213A 214F 215F 216F Growth (% YoY) Sales (1.1) (1.8) EBIT (34.) (22.5) EBITDA (29.5) (17.1) Net Profit (34.4) (31.1) Profitability (%) Gross Profit Margin Oper. Margin EBITDA Margin Net Margin ROAA ROAE Leverage Net Debt / Equity (%) (28.6) (29.6) (33.) (38.8) (44.) EBITDA/Gross Int. (x) Per Share Data (Rp) EPS CFPS BVPS ,67 1,211 1,354 DPS PER (x) EV/EBITDA (x) P/BV (x) P/CF (x) Dividend Yield (%) Please see important disclosure at the back of this report Page 16 of 21

17 FOCUS XXX Company Update XX XXXXX 213 FOCUS Sampoerna Agro Company Update 26 November 214 Mandiri Sekuritas Analyst Hariyanto Wijaya, CFA, CFP, CPA Sector : Plantation BUY Current Price Rp2,28 Price Target Rp3,5 (+33.8%) 52-wk range Rp2,45 - Rp1,7 Stock Data Bloomberg Code SGRO IJ Mkt.Cap (Rp bn/us$ mn) 4,39 / 354 Issued Shares (mn) 1,89 Avg. Daily T/O (Rp bn/us$ mn) 1.4/.1 Major shareholder Sampoerna Agri Resources Pte. Ltd. 67.1% Public 33.% EPS consensus Mansek Cons Diff 214F F F Share price performance 3m 6m 12m Absolute (%) Relative to JCI (%) 1.9 (2.1) 4.8 Strong earnings growth and still at cheap valuation SGRO has a favorable nucleus plantation profile, around 53% of its mature nucleus area is in the increasing FFB yield phase (age 4-9 years old). Continuous strong earnings growth ahead should boost its share price, which is still valued as cheap as the cost of new planting at EV/ha of US$ 6,497. Reiterate Buy with TP:Rp3,5. The beginning of CPO price uptrend. We think CPO price is in the beginning of uptrend pattern due to: 1) time-lagged impact of drought in 1Q14 starts to manifest since September 214, which should curb FY15F palm oil production by squeezing FY15 CPO world production growth to only 1.8mn tons (vs average annual growth of 2.9mn tons in the last five years). 2) Lower FY14/15F stock usage ratio of 8 major edible oils, which should favor edible oil prices. 3). Recovery in soybean price. Favorable nucleus plantation profile. SGRO has favorable nucleus plantation profile (around 3,155ha or 53% of its mature nucleus plantation is in the increasing FFB yield phase: age 4-9 years old). This should cause its nucleuses to generate strong growth in FFB production, which would generate higher profit margin due to a decrease in its nucleus production cost per palm product unit because of higher nucleus FFB yield. FINANCIAL SUMMARY SGRO s first mill in west Kalimantan => more cost efficient and higher productivity. SGRO s the first CPO mill in Ketapang (West Kalimantan), which started commercial operations since Aug 14 would reduce transportation costs and lost FFB. Up to July 14, all of its West Kalimantan FFB production of around 6, tons p.a. is processed in Central Kalimantan. The commencement of the CPO mill in Ketapang would improve its financial performance by: 1) eliminating FFB transportation cost of around Rp15bn p.a. 2) reducing lost fruits during transportation. We estimate that around 4% of its West Kalimantan FFB is lost during transportation from West Kalimantan to Central Kalimantan. 3) increasing its Oil extraction rate. Reiterate Buy with TP: Rp3,5. We fine tune our assumptions. Our revised TP of Rp3,5 is based on PE target of 11.5x on EPS FY15F. We reiterate Buy as we think strong earnings growth should boost its share price, which is still valued as cheap as cost of new planting at EV/ha of 6,497. YE Dec (Rp Bn) 212A 213A 214F 215F 216F EBITDA ,95 1,273 Net Profit Fully-diluted EPS (Rp) Fully-diluted EPS growth (%) (39.2) (63.9) P/E Ratio (x) EV/EBITDA (x) P/B Ratio (x) Dividend Yield (%) ROAE (%) Source: Company ( ), Mandiri Sekuritas ( ) Please see important disclosure at the back of this report Page 17 of 21

18 FOCUS Sampoerna Agro Company Update 26 November 214 FIGURE 34. SALES BREAKDOWN, 214F SGRO - At a Glance FIGURE 35. OPERATING PROFIT BREAKDOWN, 214F Palm products 97% Seed 2% Others 1% Palm products 95% Seed 5% FIGURE 36. NUCLEUS OIL PALM PLANTED AREA (Ha) 7, 6, 5, 4, 3, 2, 1, FY11 FY12 FY13 FY14F FY15F FY16F Mature Immature FIGURE 37. PROFITABILITY COMPARISONS, 214F 4% 35% 3% 25% 2% 15% 1% 5% % AALI LSIP SGRO Gross margin Operating margin Net margin FIGURE 38. EPS GROWTH TREND FIGURE 39. LEVERAGE TREND (Rp) 35 (%) 25 (%) 5 (x) (5) (1) (1) (2) Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 EPS EPS Growth [RHS] Net Debt/Equity (NDE) Interest Cover [RHS] Please see important disclosure at the back of this report Page 18 of 21

19 FOCUS Sampoerna Agro Company Update 26 November 214 FIGURE 4. 3,155HA OR 53% OF MATURE NUCLEUS IS IN THE INCREASING FFB YIELD PHASE (AGE 4-9 YEARS OLD) 12, 3. 1, 25. 8, 2. 6, , 1. 2, 5. Source: Company SGRO's nucleus (ha) (LHS) FFB yield (ton/ha)(rhs). FIGURE 41. OPERATIONAL STATISTICS - HISTORICAL AND ASSUMPTIONS FY11A FY12A FY13 FY14F FY15F FY16F Key variables Average foreign exchange (Rp/US$) 8,776 9,38 1,452 11,832 11,95 11,95 Volume Nucleus' FFB production (' tons) ,1 % growth 7% -11% 29% 11% 1% FFB from external parties (' tons) % growth 7% -29% 9% % % Total processed FFB (' tons) 1,614 1,723 1,356 1,64 1,696 1,788 % FFB from external to total processed 58% 58% 52% 48% 46% 44% CPO production volume (' tons) CPO sales volume (' tons) ASP Malaysia-based CPO price (US$/ton) 3,274 2,866 2,377 2,45 2,7 2,7 SGRO's CPO ASP (Rp/kg) - net of VAT 7,555 7,271 7,22 8,17 8,923 8,923 Nucleus' cost per ha (Rp mn) Financials (Rp bn) Revenue 3,142 2,986 2,561 3,286 3,843 4,68 Gross profit 1, ,231 1,37 Operating profit Net profit EPS (Rp) Mandiri Sekuritas Consensus Difference (%) Source: Company, Mandiri Sekuritas Gross margin (%) Operating margin (%) Net margin (%) Please see important disclosure at the back of this report Page 19 of 21

20 FOCUS Sampoerna Agro Company Update 26 November 214 Sampoerna Agro Profit & Loss YE Dec (Rp Bn) 212A 213A 214F 215F 216F Revenue 2,986 2,561 3,286 3,843 4,68 Gross Profit ,231 1,37 Oper. Profit EBITDA ,95 1,273 Net Interest (29) (62) (7) (7) (7) Interest Expense (37) (65) (7) (7) (7) Interest Income 7 2 Forex Losses/Gains Net Other Pre-Tax Profit Income Tax (121) (53) (166) (229) (268) Others Minority Interests Net Profit Cash Flow YE Dec (Rp Bn) 212A 213A 214F 215F 216F Operating Profit Net Interest (29) (62) (7) (7) (7) Depr & Amort Other expenses/income Other Gain / Loss (7) (1) (4) (11) (13) Tax (121) (53) (166) (229) (268) Chg in Working Capital (17) (44) 29 Other Oper. Cash Flow (35) (23) (28) (29) (3) Oper. Cash Flow Capital Expenditure (784) (455) (97) (341) (464) FCF (OPCF after Capex) (468) (334) Other Investing CF CF From Investing (784) (455) (97) (341) (464) Net Chg in Debts (56) Equity Funds Raised (2) Dividend Other Financing CF (162) (86) (15) (127) (149) CF From Financing (161) (127) (149) Non-Recur. Inc (Exp) Extraord. Inc(Exp) Net Change in Cash (121) (66) (11) Cash at beginning Cash at End Valuation YE Dec 212A 213A 214F 215F 216F Balance Sheet YE Dec (Rp Bn) 212A 213A 214F 215F 216F Cash & ST Investment Acct. Receivable Inventory Others Current Assets ,12 Investments Fixed Assets 2,746 2,997 3,622 3,681 3,813 Others 4,31 4,98 5,922 6,31 6,84 Total Assets 4,138 4,513 4,962 5,339 5,832 Curr. Liabilities Acct. Payable ST Borrowings Others Long-Term Liabilities Long-Term Payable ,242 1,242 1,242 Others Total Liabilities 1,471 1,814 1,998 1,999 2,51 Shareholder s Equity 2,667 2,699 2,963 3,34 3,78 Key Ratios YE Dec 212A 213A 214F 215F 216F Growth (% YoY) Sales (5.) (14.2) EBIT (35.) (51.5) EBITDA (22.3) (34.9) Net Profit (39.2) (63.9) Profitability (%) Gross Profit Margin Oper. Margin EBITDA Margin Net Margin ROAA ROAE Leverage Net Debt / Equity (%) EBITDA/Gross Int. (x) Per Share Data (Rp) EPS CFPS BVPS 1,393 1,41 1,555 1,753 1,984 DPS PER (x) EV/EBITDA (x) P/BV (x) P/CF (x) Dividend Yield (%) Please see important disclosure at the back of this report Page 2 of 21

21 Mandiri Sekuritas A subsidiary of PT Bank Mandiri (Persero) Tbk Plaza Mandiri 28 th Floor, Jl. Jend. Gatot Subroto Kav , Jakarta 1219, Indonesia General: , Fax : (Equity Research), (Equity Sales) RESEARCH John Rachmat Head of Equity Research, Strategy john.rachmat@mandirisek.co.id Tjandra Lienandjaja Banking tjandra.lienandjaja@mandirisek.co.id Handoko Wijoyo Construction, Toll Road handoko.wijoyo@mandirisek.co.id Hariyanto Wijaya, CFA, CFP, CPA Plantation, Heavy eq., Energy hariyanto.wijaya@mandirisek.co.id Herman Koeswanto, CFA Consumer, Poultry herman.koeswanto@mandirisek.co.id Liliana S Bambang Property, Building Material liliana.bambang@mandirisek.co.id Ariyanto Kurniawan Telecom, Coal & Metal Mining ariyanto.kurniawan@mandirisek.co.id Matthew Wibowo Retail matthew.wibowo@mandirisek.co.id Rizky Hidayat Property, Media rizky.hidayat@mandirisek.co.id Vanessa Ariati Tanuwijaya Banking, Health Care vanessa.tanuwijaya@mandirisek.co.id Aldian Taloputra Economist aldian.taloputra@mandirisek.co.id Leo Putra Rinaldy Economist leo.rinaldy@mandirisek.co.id Aditya Sastrawinata Research Assistant aditya.sastrawinata@mandirisek.co.id Wisnu Trihatmojo Research Assistant wisnu.trihatmojo@mandirisek.co.id Yudha Gautama Research Assistant yudha.gautama@mandirisek.co.id INSTITUTIONAL SALES Lokman Lie Co-Head Institutional Equities lokman.lie@mandirisek.co.id Silva Halim Co-Head Institutional Equities silva.halim@mandirisek.co.id Andrew Handaya Institutional Sales andrew.handaya@mandirisek.co.id Cindy Amelia P. Kalangie Institutional Sales cindy.amelia@mandirisek.co.id Jane Theodoven Sukardi Institutional Sales jane.sukardi@mandirisek.co.id Janefer Amanda Soelaiman Institutional Sales janefer.soelaiman@mandirisek.co.id Karmia Tandjung-Nasution Institutional Sales karmia.tandjung@mandirisek.co.id Mirna Santikara Salim Institutional Sales santikara.salim@mandirisek.co.id Oos Rosadi Institutional Sales oos.rosadi@mandirisek.co.id Vera Ongyono Institutional Sales vera.ongyono@mandirisek.co.id Yohan Setio, CFA Institutional Sales yohan.setio@mandirisek.co.id Zahra Aldila Niode Institutional Sales zahra.niode@mandirisek.co.id Kusnadi Widjaja Equity Dealing kusnadi.widjaja@mandirisek.co.id Edwin Pradana Setiadi Equity Dealing edwin.setiadi@mandirisek.co.id RETAIL SALES Ridwan Pranata Head Retail Equities ridwan.pranata@mandirisek.co.id Boy Triyono Jakarta Branch boy.triyono@mandirisek.co.id Yohanes Triyanto Kelapa Gading Branch yohanes.triyanto@mandirisek.co.id Hendra Riady Mangga Dua Branch hendra.riady@mandirisek.co.id Umar Abdullah Pondok Indah Branch umar.abdullah@mandirisek.co.id Indra Mas ari Bandung Branch indra.mas ari@mandirisek.co.id Yuri Ariadi Pontianak Branch yuri.ariadi@mandirisek.co.id Ruwie Medan Branch ruwie@mandirisek.co.id INVESTMENT RATINGS: Indicators of expected total return (price appreciation plus dividend yield) within the 12-month period from the date of the last published report, are: Buy (1% or higher), Neutral (-1% to1%) and Sell (-1% or lower). DISCLAIMER: This report is issued by PT. Mandiri Sekuritas, a member of the Indonesia Stock Exchanges (IDX) and Mandiri Sekuritas is registered and supervised by the Financial Services Authority (OJK). Although the contents of this document may represent the opinion of PT. Mandiri Sekuritas, deriving its judgement from materials and sources believed to be reliable, PT. Mandiri Sekuritas or any other company in the Mandiri Group cannot guarantee its accuracy and completeness. PT. Mandiri Sekuritas or any other company in the Mandiri Group may be involved in transactions contrary to any opinion herein to make markets, or have positions in the securities recommended herein. PT. Mandiri Sekuritas or any other company in the Mandiri Group may seek or will seek investment banking or other business relationships with the companies in this report. For further information please contact our number or fax ANALYSTS CERTIFICATION: Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her views about the companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not and will not be influenced by any part or all of his or her compensation.