PLANTATIONS. Figure 1: Changes to our CPO price forecasts

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1 Commodities Plantations ASEAN PLANTATIONS SECTOR NOTE Notes from the Field Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Maureen NATASHA T (62) E maureen.natasha@cimb.com SAW Xiao Jun T (60) E xiaojun.saw@cimb.com Show Style "View Doc Map" Contents REVIEW CPO PRICE IN OUTLOOK... 7 RISKS FINANCIALS VALUATION AND RECOMMENDATION Highlighted Companies Astra Agro Lestari We upgrade the stock to an Add from a Hold as its share price has corrected by 20% since we downgraded the stock. Kuala Lumpur Kepong We upgrade the stock to a Hold from a Reduce as its share price has fallen 16% from its peak in the current year, making its valuations more compelling. Felda Global Ventures We upgrade the stock to a Hold from a Reduce as its share price has fallen 15% since we downgraded the stock, pricing in our concerns over its acquisition of Asian Plantations Ltd. Jaya Tiasa Holdings We upgrade the stock to a Hold from a Reduce as its share price has fallen 22% since we downgraded the stock, pricing in our worries over its weak FFB yields. London Sumatra We upgrade the stock to a Hold from a Reduce as its share price has fallen since we downgraded our rating due to concerns over weaker prices. Sampoerna Agro We upgrade the stock to a Hold from a Reduce as its share price has fallen 11% since we downgraded our rating due to concerns over weaker CPO prices. Ta Ann Holdings We downgrade the stock to a Hold from an Add due to its less exciting earnings prospects, following our CPO price downgrades. Hit by several speed bumps We are cutting our average CPO price forecasts by 5-11% for to reflect larger-than-expected global edible oil supplies as well as weaker demand for biodiesel usage in Indonesia. The CPO price declines in 3Q14 were sharper than what we had previously expected, no thanks to stronger soybean supplies and weaker Chinese demand. Figure 1: Changes to our CPO price forecasts Actual Old New Old New Old New CPO - cif (US$ tonne) CPO - fob (US$ tonne) Ex-rate (RM/US$) CPO - fob (RM/tonne) 2,456 2,847 2,487 2,921 2,558 2,921 2,756 Transport cost Malaysia CPO export tax 4% 5.0% 3.9% 4.0% 3.8% 4.0% 3.8% Malaysia local CPO price (RM/tonne) 2,367 2,700 2,390 2,800 2,460 2,870 2,650 Indonesia CPO export tax 9.5% 10.0% 8.5% 11.0% 7.0% 11.0% 8.0% Indonesian CPO price (US$/tonne) IDR rate 10,433 12,150 11,800 12,150 11,600 12,150 11,600 Indonesian CPO price (IDR/kg) 7,359 9,349 8,254 9,570 8,361 9,570 8,911 These factors, coupled with the recent sharp drop in crude oil prices, are likely to put a lid on near-term CPO prices. We cut our EPS forecasts for regional planters by up to 41% to reflect our CPO price downgrade. This lowers our target prices by up to 23% across the board. But we have upgraded six stocks as their valuations have improved. Our sector rating remains Neutral, with First Resources as our key pick. CPO price downgrade 3Q14's CPO price correction was steeper than expected due to stronger edible oils supplies prospects, weaker demand from China and lower crude oil prices. Following a review of the latest fundamentals for edible oils and fats, we have lowered our average international CPO price forecast by 5-11% for to US$ per tonne (RM2,390-2,650). Better CPO prices in We project CPO prices to remain range-bound in the near term at RM1,900-2,300 per tonne, as the market digests the record US soybean supplies, higher palm oil SOURCES: CIMB, COMPANY REPORTS supplies and lower crude oil prices. For 2015, we expect CPO prices to trend higher due to slower edible oils output growth and restocking activities by customers. We are more bullish on 2016 price prospects, as we expect stronger biodiesel demand and potential biological tree stress....to offset higher cost We expect planters to face tougher challenges of reining in a steeper rise in operating costs in 2015 compared to The cost increases will be driven by higher minimum wages and lower fuel subsidies. Maintain Neutral call The steep share price corrections of selected regional planters have improved the valuations of this sector. We upgrade the ratings on six stocks to Hold/Add to reflect their more attractive valuations as well as downgrade Ta Ann to a Hold. However, we remain Neutral on the sector due to the lack of near-term catalysts. We would turn more positive when CPO prices can sustainably trend above RM2,500 per tonne. IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

2 Plantations Indonesia Figure 2: Sector Comparisons Company Bloomberg Ticker Recom. Price Target Price Market Cap Core P/E (x) 3-year EPS P/BV (x) Recurring ROE (%) EV/EBITDA (x) Dividend Yield (%) (local curr) (local curr) (US$ m) CY2014 CY2015 CAGR (%) CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 Sime Darby Bhd SIME MK Hold , % % 10.4% % 2.8% IOI Corporation IOI MK Reduce , % % 18.9% % 2.1% Kuala Lumpur Kepong KLK MK Hold , % % 14.4% % 3.5% Felda Global Ventures FGV MK Hold , % % 7.0% % 2.0% Genting Plantations GENP MK Hold , % % 9.2% % 1.2% Hap Seng Plantations HAPL MK Hold % % 7.0% % 4.2% Jaya Tiasa Holdings JT MK Hold % % 5.3% % 0.9% Ta Ann TAH MK Hold % % 7.3% % 1.7% Oriental Holdings ORH MK Hold , % % 4.3% % 0.9% Malaysia Average % % 9.3% % 2.1% Wilmar International WIL SP Hold , % % 7.5% % 1.6% Golden Agri-Resources GGR SP Hold , % % 3.9% % 2.2% First Resources Ltd FR SP Add , % % 15.8% % 2.3% Indofood Agri Resources IFAR SP Hold % % 5.1% % 0.0% Singapore Average % % 8.1% % 1.5% Astra Agro Lestari AALI IJ Add 20,300 25,000 2, % % 19.2% % 2.7% Salim Invomas Pratama SIMP IJ Add % % 5.2% % 1.0% London Sumatra LSIP IJ Hold 1,845 1,960 1, % % 12.6% % 3.1% Sampoerna Agro SGRO IJ Hold 1,930 2, % % 10.1% % 1.7% Indonesia Average % % 11.8% % 2.1% Average (all) % % 9.6% % 2.0% SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG 2

3 Plantations Indonesia Hit by several speed bumps Crude palm oil export prices in Indonesia could rise to US$ per tonne in Jan-Mar 2015 due to a slowdown in production growth. Thomas Mielke, editor of Oil World REVIEW OF CPO PRICE IN 2014 Bullish price outlook at the start of 2014 CPO prices started on a positive note in 2014 due to concerns over: (1) the potential impact of droughts in Peninsular Malaysia, North Sumatra and Riau in Feb-Mar 2014, which may lead to weaker palm oil yields. (2) the potential impact of the widely-predicted El Nino event in 2014, which may result in lower rainfall in key palm oil producing countries, leading to a potential shortfall in palm oil supplies. (3) rising usage of CPO as biodiesel in Indonesia and Malaysia due to the planned implementation of higher biodiesel-mandate blends, which will reduce the availabilities of CPO exports from Indonesia. (4) unfavourable weather conditions in South America. As a result of all the above factors and the seasonally lower CPO output in 1Q, CPO prices rallied 13% to a high of RM2,917 per tonne on 11 Mar In 1Q14, CPO prices averaged RM2,671 per tonne. Figure 3: Malaysia CPO prices Figure 4: Malaysia PK prices (RM per tonne) 3, (RM per tonne) 2, ,800 2,400 2,200 2,600 2,000 2,400 1,800 2,200 1,600 1,400 2,000 1,200 1,800 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOURCES: CIMB, COMPANY REPORTS 1,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOURCES: CIMB, COMPANY REPORTS CPO prices weaken in 2Q... CPO prices started to decline in 2Q14 when the drought concerns in Malaysia eased after the key palm oil areas started to receive timely rainfall. On top of this, CPO production in Malaysia came in above expectations, due to the delayed ripening of fruits from 1Q onwards. As a result, the average CPO price fell 4% qoq to RM2,572 per tonne in 2Q14 but remains broadly in line with our previous average CPO price projection of RM2,700 per tonne for and corrected to below RM2,000 per tonne level in 3Q The unexpected downturn came in 3Q14, where a confluence of bearish factors caused CPO prices to break below the RM2,000 per tonne mark for the first time in more than five years. The price decline was steeper than expected and we have identified the following as the key reasons for this steep price correction: 3

4 Plantations Indonesia (1) Bumper US soybean supplies. US soybean production is expected to rise by 13% to reach a record m tonnes (vs. 92m tonnes in the last season). This, coupled with concerns over a potential upgrade to crop estimates by the market, has caused soybean and soya oil prices to fall by 16% and 17% YTD, respectively. Figure 5: Soybean and soybean oil futures prices (US cent/bu) Soybean (LHS) Soybean Oil (RHS) (US cent/lb) 1, Figure 6: US soybean production, consumption and exports (m tonnes) Production Domestic consumption + export 110 1,500 1, , Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 SOURCES: CIMB, BLOOMBERG 50 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15F SOURCES: CIMB, USDA (2) Large rapeseed and sunflower oil supplies. Besides that, the EU is enjoying a good harvest from its rapeseeds plantings, and Russia and Ukraine are expected to produce higher sunflower oil supplies. This has resulted in a sharp drop in the prices of sunflower oils and rapeseed oils, making these edible oil products more price competitive against palm oil. As a result, CPO's price advantage relative to these major edible oils was eroded. Figure 7: Monthly prices of palm oil and soybean oil, and discount gap (US$ per tonne) 1,400 (US$ per tonne) 800 Figure 8: Monthly prices of palm oil and sunflower oil, and discount gap (US$ per tonne) 1,400 (US$ per tonne) 700 Figure 9: Monthly prices of palm oil and rapeseed oil, and discount gap (US$ per tonne) 1,800 (US$ per tonne) 700 1,300 1,200 1,100 1, CPO (LHS) Soybean Oil (LHS) Discount (RHS) ,300 1,200 1,100 1, CPO (LHS) Sunflower Oil (LHS) Discount (RHS) ,600 1,400 1,200 1, CPO (LHS) 600 Rapeseed oil (LHS) Discount (RHS) Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 - SOURCES: CIMB, OIL WORLD, MPOB SOURCES: CIMB, OIL WORLD, MPOB SOURCES: CIMB, OIL WORLD, MPOB (3) Concerns over rising palm oil stocks. There are also concerns over a build-up in palm oil stocks in 3Q due to seasonally higher production, while exports remain poor. Palm oil exports from Malaysia declined 6% in 9M14, due to weaker demand from China, Pakistan and the US. 4

5 Plantations Indonesia Figure 10: Malaysia's monthly CPO production ('000 tonnes) 2,200 2,000 1,800 Figure 11: Monthly CPO stocks in Malaysia ('000 tonnes) 2,800 2,600 2,400 2,200 2,000 1,600 1,800 1,400 1,600 1,400 1,200 1,200 1,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOURCES: CIMB, MPOB 1,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOURCES: CIMB, MPOB (4) Chinese buyers affected by funding issues. Some buyers from China are reportedly facing difficulties in obtaining letters of credit, as banks have turned cautious following the Qingdao port investigation. This, coupled with relatively elevated palm oil stocks at China ports, has led to slowing demand from the second largest importer of palm oil. Figure 12: Total palm oil stocks in China domestic ports drop as traders drawdown stocks due to difficulties in raising financing (Palm oil stocks at China domestic ports - '000 tonnes) 1,600 1,400 1,200 1, Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 SOURCES: CIMB, COFEED Figure 13: Malaysia's palm oil exports to China fell in August following reports of Qingdao port investigations ('000 tonnes) Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 SOURCES: CIMB, MPOB (5) Downgrade of El Nino event risk. Last but not least, the weather experts have downgraded the probability of El Nino to 50-67% from 70-80% earlier. This has led to the removal of the weather risk premium on CPO prices. 5

6 Plantations Indonesia Figure 14: El Nino probability during the year by NOAA Figure 15: Predictions on El Nino probability in % 80% 80% 70% 60% 50% 50% 50% 65% 70-80% 70-80% 65% 60-65% 67% 70% 60% 50% 40% 67% 50% 50% 40% 30% 30% 20% 20% 10% 10% 0% Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 0% US National Oceanic and Atmospheric Administration (NOAA) India Meteorological Department Australian Bureau of Meteorology SOURCES: CIMB, NOAA SOURCES: CIMB The combination of the above factors, coupled with speculative selling and a more cautious buying stance by consumers, caused CPO prices to decline 21% from the end-jun price level of RM2,463 per tonne to a low of RM1,934 per tonne on 2 Sep The price correction appears to be overdone as CPO prices were trading below the floor price, based on the CPO-biodiesel breakeven price of RM2,256 per tonne at the crude oil price of US$100 per barrel in Sep. Figure 16: Brent crude oil futures price (US$ per bbl) Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 SOURCES: CIMB, BLOOMBERG Figure 17: CPO-biodiesel breakeven price vs. CPO price (US$/tonne) CPO (LHS) Breakeven price (w/o subsidy) (LHS) 1,400 1,300 1,200 1,100 1, Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 SOURCES: CIMB, BLOOMBERG CPO prices have rebounded off its lows Since then, CPO prices have recovered 12% to the current level of RM2,155 per tonne. We think that one of the turning points for CPO prices was when the Malaysian government announced its plans to scrap the export tax on CPO for Sep and Oct, as part of the government's efforts to mitigate price declines. The government had earlier set the export tax at 4.5% for Sep. This provides the Malaysian producers with savings of RM106 per tonne and a slight edge relative to the Indonesia planters, which were subject to 9% export tax on CPO in Sep. This helped to boost Malaysian palm oil exports by 13% mom in Sept 14 and reined in the rise in palm oil stocks. However, we see new potential headwinds for CPO prices, due to recent steep correction of crude oil prices to US$86 per barrel which erodes the appeal of converting CPO into biodiesel. 6

7 Plantations Indonesia Figure 18: Malaysia's monthly CPO export tax rate and value (RM per tonne) Export tax (LHS) Export tax rate (RHS) % Figure 19: Indonesia's monthly CPO export tax rate and value (US$ per tonne) Export tax (LHS) Export tax rate (RHS) % % % % % 10.0% % 8.0% % % 4.0% % % % Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 SOURCES: CIMB, MINISTRY OF TRADE OF INDONESIA - 0.0% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 SOURCES: CIMB, MPOB, MINISTRY OF TRADE OF INDONESIA OUTLOOK Cutting our CPO price projections We are cutting our average CPO price forecasts by 10% and 11% to US$840 per tonne in 2014 and US$850 per tonne in In line with this, we have lowered our Malaysian CPO price projections to RM2,390 for 2014 and RM2,460 per tonne for Our Indonesian CPO price forecasts also witnessed similar downgrades to Rp8,254 per kg for 2014 and Rp8,361 per kg for For 2016, we have lowered our CPO price forecasts by only 5% to US$910 per tonne (RM2,650 per tonne). The new CPO price forecasts take into consideration the larger-than-expected global edible oil supplies and slower edible oils demand growth. We are raising our 2014 CPO projections for Malaysia to 20m tonnes (from 19.5m tonnes) in view of better FFB yields recorded by the Malaysian estates in 9M14. The larger edible oil supplies came mainly from competing edible oils. We are also projecting slower demand growth, following the International Monetary Fund's (IMF) decision to cut its outlook for global growth for 2015 due to persistent weakness in the euro zone and a broad slowdown in several major emerging markets. On top of these factors, we are also anticipating slower growth in biodiesel demand, following the recent decline in global crude oil prices. Figure 20: Changes to our CPO price forecasts % chge % chge %chge Actual Old New Old New Old New CPO - cif (US$ tonne) (10%) (11%) (5%) CPO - fob (US$ tonne) (11%) (12%) (6%) Ex-rate (RM/US$) (2%) % % CPO - fob (RM/tonne) 2,456 2,847 2,487 (13%) 2,921 2,558 (12%) 2,921 2,756 (6%) Transport cost % % % Malaysia CPO export tax 4% 5.0% 3.9% nm 4.0% 3.8% (5%) 4.0% 3.8% (5%) Malaysia local CPO price (RM/tonne) 2,367 2,700 2,390 (11%) 2,800 2,460 (12%) 2,870 2,650 (8%) Indonesia CPO export tax 9.5% 10.0% 8.5% 11.0% 7.0% (36%) 11.0% 8.0% (27%) Indonesian local CPO price (US$ tonne) (9%) (8%) (2%) IDR rate 10,433 12,150 11,800 (3%) 12,150 11,600 (5%) 12,150 11,600 (5%) Indonesian CPO - fob (IDR/kg) 7,359 9,349 8,254 (12%) 9,570 8,361 (13%) 9,570 8,911 (7%) SOURCES: CIMB, COMPANY REPORTS Outlook for rest of 2014 We project CPO prices to remain range-bound at RM1,900-2,300 per tonne for the rest of Oct and Nov 2014, as the market absorbs the seasonally higher palm 7

8 Plantations Indonesia oil output as well as other edible oil supplies. Our revised price forecasts assumes 4Q14 CPO prices to average RM2,200 per tonne. We believe that it will be difficult for CPO prices to break above the RM2,300 per tonne price level convincingly given the current crude oil price level of US$86 per barrel. This is because our estimate shows that the CPO-biodiesel breakeven price to be only RM2,080 per tonne, given the current crude oil price level, which is below the current CPO price of RM2,155 per tonne. Figure 21: Malaysia CPO prices (RM per tonne) 2,900 Figure 22: International CPO prices (Rotterdam) (US$ per tonne) 950 2,700 2,500 2,300 2,315 2,317 2,338 2,500 2,672 2,572 2, ,100 1, , ,500 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 SOURCES: CIMB, MPOB, OIL WORLD SOURCES: CIMB, MPOB, OIL WORLD There is potential for CPO prices to see a minor rally towards the end of 2014, if (1) CPO output from Peninsular Malaysia is severely impacted by the drought experienced in 1Q14; and (2) there are production downgrades by analysts on soybean crops from South America due to poor weather. However, this could be offset by weaker demand for voluntary blending of edible oils due to lower crude oil prices. Some parts of Malaysia were impacted by severe droughts that lasted close to two months in Feb-Mar We expect this to affect yields from palm oil trees in the later part of 2014 and the early part of Based on the feedback from planters that were affected, the potential impact on FFB yield could be 5-15%. (see Figure 23) Figure 23: Average rainfall in West Malaysia (% of deviation from normal) Figure 24: Average rainfall in Indonesia (% of deviation from normal) (%) (%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 20 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOURCES: CIMB, OIL WORLD -60 SOURCES: CIMB, OIL WORLD 8

9 Plantations Indonesia Recently, Oil World recently cut its forecasts for global soybean output by 3m tonnes as production prospects have deteriorated in South America, primarily in Brazil (due to severe drought) and Argentina (lower than expected plantings) (see Figure 25). We project food demand to remain fairly stable and CPO to retain its market share in the global edible oils market. However, we expect voluntary biodiesel demand to decline as it is not economically viable to convert CPO to biodiesel at the moment. Figure 25: Soybean plantation progress in Mato Grosso, Brazil Figure 26: Global soybean production (in m tonnes) 11/12 12/13 13/14 14/15F Opening stocks Production (in m ha) 21-Oct Oct Oct Oct-14 5-year avg ( ) Total area Planted area % 39.90% 32.80% 27.40% 9.30% 28.20% N. Hemisphere EU Russia & Ukraine Canada US China India Other N. Hem S. Hemisphere Argentina Brazil Paraguay Other S. Hem SOURCES: CIMB, COMPANY REPORTS Total supply SOURCES: CIMB, OIL WORLD We project 2015 to be a consolidation year For 2015, we expect average CPO prices to rise by 3% to RM2,460 per tonne, driven by slower edible oils supply growth. We do not expect 2015 to be an exciting year for CPO prices as the market will take some time to absorb the higher soybean supply from the US and we do not expect major hiccups in palm oil output. This is fairly similar to the situation in 2012, where it took the market around six months in 2013 to absorb the excess CPO supply held as stocks. We project moderate edible oils demand growth in view of the slowing global economic growth and weaker crude oil prices. We expect India to be the key growth market for palm oil exports due to weaker domestic oilseeds supplies. We project global CPO supplies to grow by 5%, driven mainly by better FFB yields and larger mature areas in Indonesia and Malaysia. Indonesia will be the key growth driver for global CPO supply. We expect CPO production from Indonesia to increase by 7% (or 2m tonnes) t0 33.1m tonnes, due to rising new mature areas and better FFB yields. We believe that Indonesia's CPO output will remain fairly strong, driven by the recovery in FFB yields in North Sumatra and new mature areas from Kalimantan. To recap, our analysis revealed that the new planting rates for palm oil estates in Indonesia peaked in Most of these estates are expected to reach their prime FFB yield potential in For Malaysia, we project a 3% rise in production to 20.7m tonnes. This will be driven by new mature areas coming onstream, either from replanted areas or new plantings in Sarawak. 9

10 Plantations Indonesia Figure 27: Malaysia CPO production Figure 28: Indonesia CPO production ('000 tonnes) ('000 tonnes) 25,000 20,000 15,000 17,734 17,565 16,994 18,912 18,785 19,216 20,033 20,700 35,000 30,000 25,000 20,000 19,400 21,200 22,400 24,300 26,900 28,400 31,078 33,117 10,000 15,000 10,000 5,000 5, E 2015E E 2015E SOURCES: CIMB, MPOB, OIL WORLD SOURCES: CIMB, MPOB, OIL WORLD We project consumption for global edible oils to grow by around 3-4%, driven by an expanding population and income growth. Biodiesel demand growth is projected to be driven by higher mandates in Malaysia, Indonesia and Brazil. Malaysia is expected to complete the implementation of its 5% biodiesel blend in Dec We project Indonesia to continue with its plan of implementing a 10% blend in the country and Brazil to step up biodiesel usage in the country, following the country's plan to raise the mandatory biodiesel mix to 6% and 7% in Nov Figure 29: Biodiesel production in Brazil ('000 tonnes) F Production 2,096 2,347 2,386 2,562 3,000 Feedstock used Soya oil 1,738 1,906 1,795 1,890 2,150 Tallow Cotton oil Other oils Figure 30: Supply and demand of soya oil (SBO) in Brazil ('000 tonnes) F Opening stocks Production 6,928 7,341 7,010 7,077 7,340 Imports Exports 1,564 1,741 1,757 1,362 1,300 Consumption of which for: Total 5,311 5,560 5,360 5,748 6,050 Biodiesel 1,738 1,906 1,795 1,890 2,150 Other uses (mainly food) 3,573 3,654 3,565 3,858 3,900 SOURCES: CIMB, OIL WORLD Ending stocks SOURCES: CIMB, OIL WORLD Why we are more bullish on 2016 CPO price prospects We are more bullish on CPO price prospects in 2016 because we expect slower CPO supply growth due to weaker FFB yields, that are led by biological tree stress and lower fertilisers inputs. Also, we expect smaller new mature areas to come onstream much due to lower new plantings in 2012/13. We also expect Indonesia to make better progress on their biodiesel mandates in 2016, as we expect most of the infrastructure issues relating to the biodiesel implementation to be addressed by In 2013, Indonesian estates posted lower-than-expected FFB yields due partly to biological tree stress. Our projections assume that after two good years of production in 2014/15, the estates could be affected by biological tree stress, which will lead to lower FFB yields in 2016 (see Figures 31 and 32). 10

11 Plantations Indonesia Figure 31: FFB yield trend of Golden Agri-Resources revealed the group were impacted by tree stress in 2013 (tonnes per ha) Figure 32: FFB yield trend of Astra Agro Lestari revealed the group were impacted by tree stress in 2013 (tonnes per ha) SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS At current CPO prices, smaller and less efficient palm oil producers will be impacted by lower cashflows. This may prompt some planters to cut their fertilisers inputs in 4Q and 2015, which could negatively impact FFB yields by estates in Thirdly, we expect the impact of slower new plantings in Indonesia since 2010 to lead to slower output growth starting from Our studies of seed sales of selected planters and new plantings from listed CPO players have confirmed this trend. Overall, we project CPO prices to rise by 8% to RM2,650 per tonne in Figure 33: Indonesia's germinated seed sales against CPO price (Seed supply in m) Seed supply in Indonesia CPO price 200 (CPO price US$) 1, Indonesian CPO price, US$/tonne Seed supply in Indonesia SOURCES: CIMB, LMC, CPO BWPT S price ABDRIGED PROSPECTUS 11

12 Plantations Indonesia Figure 34: FFB yield of palm oil trees at various ages (tonnes per ha) 40 Low Medium High Age SOURCES: CIMB, MPOB RISKS Weather impact Our revised CPO price forecasts assume that weather conditions will remain normal. If an El Nino/La Nina condition returns and leads to poor weather in major planting areas, there could be upside potential to our CPO price forecasts. The past three consecutive years of poor weather started with an El Nino in 2009/10 as well as two back-to-back La Nina events in 2010/11 and 2011/12. The last El Nino event occurred in 4Q09-1Q10. The National Oceanic and Atmospheric Administration (NOAA) has recently indicated that an El Nino Pacific Ocean warming event is favoured to begin in the next two months and could last into the Northern Hemisphere spring of 2015, though it will be rather weak. Figure 35: Price changes during ENSO cycle Type Period Intensity yoy chg* CPO Soybean oil El Nino May 82 - Jun 83 Strong 12.8% 17.9% El Nino Aug 86 - Feb 88 Moderate 33.1% -3.8% El Nino May 91- Jun 92 Moderate 16.9% 1.6% El Nino Sep 94 - Mar 95 Moderate 39.7% 28.1% El Nino May 97 - Apr 98 Strong 22.9% 10.8% El Nino May 02 - Feb 03 Moderate 16.2% -5.5% El Nino Jul 04 - Jan 05 Weak 6.3% 11.2% El Nino Sep 06 - Jan 07 Weak 13.3% 9.9% El Nino Jul 09 - Apr 10 Moderate 31.9% 18.4% * Calculated using average prices in the impacted calendar years SOURCES: CIMB, NOAA, BLOOMBERG Figure 36: Malaysian CPO output and FFB yield changes during ENSO cycle Type Period Intensity yoy chg* CPO output FFB yield El Nino May 82 - Jun 83 Strong -14.1% n/a El Nino Aug 86 - Feb 88 Moderate -0.2% n/a El Nino May 91- Jun 92 Moderate 0.8% -3.7% El Nino Sep 94 - Mar 95 Moderate -2.5% -9.1% El Nino May 97 - Apr 98 Strong -8.3% -16.3% El Nino May 02 - Feb 03 Moderate 3.8% -0.1% El Nino Jul 04 - Jan 05 Weak 4.7% -2.1% El Nino Sep 06 - Jan 07 Weak 6.1% 3.8% El Nino Jul 09 - Apr 10 Moderate -3.3% -6.1% * Calculated using calendar year output and yield SOURCES: CIMB, NOAA, BLOOMBERG Crude oil price and biodiesel policies Our current forecasts are based broadly on our average Brent crude oil prices of US$95 per barrel for 2015 and US$100 per barrel for If oil prices race towards new highs due to geopolitical risks, supply disruptions or stronger demand, such an increase could boost edible oils demand for biodiesel usage. Also, should the governments in Indonesia, Malaysia, Argentina, Brazil, the US and EU boost their incentives or mandates for biodiesel, the demand prospects for edible oils and its selling prices could improve significantly. 12

13 Plantations Indonesia Figure 37: CPO-biodiesel breakeven table Crude oil (Brent) CPO breakeven without subsidy CPO breakeven with subsidy Ex-rate CPO breakeven without subsidy CPO breakeven with subsidy US$ barrel US$ per tonne US$ per tonne US$/RM RM per tonne RM per tonne , ,118 1, ,599 2, ,080 2, ,321 2, ,561 3, ,681 3, ,802 3,289 SOURCES: CIMB, COMPANY REPORTS Government policies on edible oils Palm oil exports from Malaysia and Indonesia are subject to export taxes at RM2,250 per tonne or US$751 per tonne. India has also been revising its edible oil import duties to help its domestic refining sector. As such, any changes to the palm oil export tax structure could impact the CPO prices achieved by the CPO producers as well as the demand for their products. Figure 38: Malaysia's CPO export tax structure CPO price (RM per tonne) CPO export tax rate 2,250-2, % 2,400-2, % 2,550-2, % 2,700-2, % 2,850-3, % 3, % 3,150-3, % 3,300-3, % 3,400-3, % SOURCES: CIMB, MPOB Figure 39: Indonesia tax structure for selected palm products Base price (US$ per tonne) CPO RBD Palm Olein RBD Palm Oil RBD Palm Stearin Biodiesel % 0.0% 0.0% 0.0% 0.0% > % 2.0% 0.0% 0.0% 0.0% > % 3.0% 0.0% 0.0% 0.0% > % 4.0% 2.0% 2.0% 0.0% > % 5.0% 3.0% 3.0% 0.0% > % 6.0% 4.0% 4.0% 2.0% > % 7.0% 5.0% 5.0% 2.0% > % 8.0% 6.0% 6.0% 2.0% > % 9.0% 7.0% 7.0% 2.0% > % 10.0% 8.0% 8.0% 5.0% > % 11.5% 9.0% 9.0% 5.0% > % 13.0% 10.0% 10.0% 7.5% SOURCES: CIMB, COMPANY REPORTS Prospects for the global economy Weaker economic prospects have a negative impact on CPO prices as subpar economic growth is likely to dampen the demand for edible oils and weigh on crude oil prices. This could indirectly lower the support level for CPO prices and lead to an outflow of investments in the commodity markets. Anti-palm oil lobby Palm oil continues to face challenges that could negatively impact the global perception of palm oil products. If the negative campaign against palm oil gains momentum, the long-term demand for CPO could be negatively impacted, hence widening its price discount to other edible oils. The Roundtable on Sustainable Palm Oil (RSPO), a non-profit organisation, was formed in 2004 to help palm oil producers deal with environmental charges levied against palm oil by getting their palm oil certified. Since then, Indonesian and Malaysian governments have come out with their own sustainable certifications, such as the Indonesia Sustainable Palm Oil (ISPO) and Malaysian Sustainable Palm Oil (MSPO) standards. 13

14 Plantations Indonesia Figure 40: Rising supply of Certified Sustainable Palm Oil (CSPO) ('000 tonnes) 8,000 7,000 6,725 6,000 5,000 4,799 4,852 4,000 3,000 2,774 2,000 1,358 1, M13 SOURCES: CIMB, RSPO FINANCIALS Earnings revision for planters We lower our FY14-16 earnings forecasts for all the plantation companies under our coverage by 41% to reflect our new CPO price forecasts. Our earnings adjustments are more significant for pure upstream and smaller palm oil players, and less for integrated or diversified planters as the earnings from other businesses help cushion the impact of weaker plantation earnings. We have also imputed a 8-10% rise in cost assumptions for Indonesian planters in 2015 due to expectations of a hike of 10-15% in the minimum wage as well as flattish to higher fertiliser prices (see Fig 42). For Malaysian palm oil operators, we are assuming a 5-8% rise in costs as we expect some wage adjustments to reflect the country's Goods and Services Tax (GST), which will come into effect in Apr 2014, as well as a higher inflation rate due to recent cut in fuel subsidies by the government. Figure 41: Changes in EPS Forecast Company Year end FY14 FY15 FY16 Malaysia Sime Darby June 0% -16% -11% IOI Corp June -1% -14% -8% KL Kepong Sept -6% -13% -6% Felda Global Ventures Dec -17% -37% -22% Genting Plantations Dec -11% -15% -6% Hap Seng Plantations Dec -12% -17% -7% Jaya Tiasa June 0% -36% -40% Ta Ann Dec -19% -41% -17% Oriental Holdings Dec -2% -11% -13% Singapore Wilmar International Dec -1% -4% -7% Golden Agri Dec -11% -19% -9% First Resources Dec -10% -29% -25% Indofood Agri Dec -8% -17% -5% Indonesia Astra Agro Dec -21% -29% -24% SIMP Dec -10% -21% -8% London Sumatra Dec -25% -28% -22% Sampoerna Agro Dec -11% -27% -20% SOURCES: CIMB, COMPANY REPORTS 14

15 Plantations Indonesia Figure 42: Historical minimum wage increase at selected provinces in Indonesia Province % chg Rp ' CAGR North Sumatra ,036 1,200 1,375 1, % 10.7% West Sumatra ,055 1,150 1,350 1, % 11.1% South Sumatra ,048 1,195 1,630 1, % 17.2% Riau 902 1,016 1,120 1,238 1,400 1, % 13.5% Jambi ,028 1,143 1,300 1, % 13.4% Bengkulu ,200 1, % 12.9% Bangka Belitung ,024 1,110 1,265 1, % 14.0% Riau Islands ,015 1,365 1, % 13.3% Jakarta 1,070 1,118 1,290 1,529 2,200 2, % 17.9% Banten ,000 1,042 1,170 1, % 7.6% West Kalimantan ,060 1, % 14.4% Central Kalimantan ,135 1,327 1,553 1, % 14.6% South Kalimantan 930 1,025 1,126 1,225 1,338 1, % 11.7% East Kalimantan 955 1,002 1,084 1,177 1,752 1, % 14.6% South Sulawesi 905 1,000 1,100 1,200 1,440 1, % 14.7% Central Sulawesi , % 11.7% Southeast Sulawesi ,032 1,125 1, % 12.7% North Sulawesi 930 1,000 1,050 1,250 1,550 1, % 15.4% Gorontalo ,175 1, % 14.4% West Sulawesi ,006 1,127 1,165 1, % 9.0% West Nusa Tenggara ,000 1,100 1, % 7.8% East Nusa Tenggara ,010 1, % 9.7% Maluku ,275 1, % 12.8% North Maluku ,201 1, % 13.3% West Papua 1,180 1,210 1,410 1,450 1,720 1, % 9.6% Papua 1,216 1,317 1,403 1,585 1,710 1, % 9.3% SOURCES: CIMB, CEIC VALUATION AND RECOMMENDATION Changes to our target prices We are downgrading our target prices for almost all regional planters in our coverage (except for two players) by up to 23% to take into account earnings revisions and the rollover of our target prices to end Two plantation counters witnessed an upgrade in their target prices due to the rollover effect. We have kept most of our valuations methodology broadly intact, which is based on historical average P/Es. 15

16 Plantations Indonesia Figure 43: Changes to target prices Company Currency Current price Old TP New TP %chg Upside/downside Malaysia Sime Darby RM % 1% IOI Corp RM % -9% KL Kepong RM % 5% FGV RM % 7% Genting Plantations RM % 6% Hap Seng Plantations RM % -3% Jaya Tiasa RM % 0% Ta Ann RM % 4% Oriental Holdings RM % 0% Singapore Wilmar International S$ % 8% Golden Agri S$ % 9% First Resources S$ % 22% Indofood Agri S$ % 1% Indonesia Astra Agro Rp 20,300 26,000 25,000-4% 23% SIMP Rp 745 1, % 22% London Sumatra Rp 1,845 1,850 1,960 6% 6% Sampoerna Agro Rp 1,930 2,150 2,050-5% 6% SOURCES: CIMB, COMPANY REPORTS Rating changes We upgrade our ratings for six regional planters, namely KL Kepong, FGV, Jaya Tiasa, London Sumatra and Sampoerna Agro, to Hold from Reduce and Astra Agro to Add from Hold, as the valuations for these stocks have turned more attractive, following the recent sharp correction of their share prices. We downgrade Ta Ann to a Hold from an Add due to its less exciting earnings prospects following our CPO price downgrade. Figure 44: Changes in recommendation Company Previous recommendation Current recommendation Malaysia Sime Darby Hold Hold IOI Corp Reduce Reduce KL Kepong Reduce Hold FGV Reduce Hold Genting Plantations Hold Hold Hap Seng Plantations Hold Hold Jaya Tiasa Reduce Hold Ta Ann Add Hold Oriental Holdings Hold Hold Singapore Wilmar International Hold Hold Golden Agri Hold Hold First Resources Add Add Indofood Agri Hold Hold Indonesia Astra Agro Hold Add SIMP Add Add London Sumatra Reduce Hold Sampoerna Agro Reduce Hold SOURCES: CIMB, COMPANY REPORTS 16

17 Plantations Indonesia Maintain Neutral rating We are keeping to our Neutral stance on the sector for the following reasons: (1) Regional sector P/Es are turning more attractive following the recent share price correction, as we think that the market has already priced in the recent CPO price weakness. The regional plantation sector is now trading closer to 1 s.d. below its 3-year average P/E of 18.5x, following our earnings adjustments. The sector was trading at 1 s.d. above its 3-year average P/E at the start of the year, as the market was then overly exuberant that a potential El Nino event could help drive CPO prices higher. Figure 45: Regional plantation sector s 3-year forward P/E (x) 26.0 P/E Avg +1 s.d. -1 s.d sd: 21.4x Avg: 18.5x sd: 15.6x Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 SOURCES: CIMB, COMPANY REPORTS (2) Plantation stocks across the regions have generally performed in line with or underperformed its respective markets for the past four years. On top of this, market sentiment on the sector has generally been neutral to bearish since 2012, with the spurts of bullishness in 2014 being driven mainly by weather events or biodiesel policies. Figure 46: Absolute performance of plantations sector and market index in Malaysia Figure 47: Absolute performance of plantations sector and market index in Singapore Figure 48: Absolute performance of plantations sector and market index in Indonesia 15% 10% Plantations sector KLCI 25% 20% 15% Plantations sector FSSTI 25% 20% 15% Plantations sector JCI 5% 10% 5% 10% 5% 0% 0% 0% -5% -5% -5% -10% -10% -10% -15% -15% -20% -20% -15% -25% -25% YTD YTD YTD 2014 SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG (3) Even though the sector's valuations are not expensive, we could not find any compelling reasons to re-rate the stocks significantly in light of their unexciting near-term earnings prospects. 17

18 Plantations Indonesia We are of the view that a better time to get into the sector will arise when all the bad news relating to cost increases have been priced into the plantation stocks and that such an opportunity could appear in 1H2015. Indonesia is due to set its minimum wage in Nov and Malaysia is currently preparing to roll out GST on 1 Apr Preferred picks in the sector We continue to like First Resources for its strong output growth prospects, young estates and integrated business model. We view its recent share price weakness, arising from its poor 1H earnings performance, as a good opportunity to nibble on the stock and hence, take advantage of its long-term growth prospects. Our other top pick is Astra Agro in Indonesia for its strong corporate governance and attractive valuations. We project strong growth to come from its Kalimantan estates, while its venture into downstream businesses will partially cushion the group's earnings against CPO price volatility. We also like SIMP in Indonesia due mainly to its cheap assets proposition. The stock is trading below its NBV and the market is pricing the group's estates at an EV/ha of US$7k, which is below replacement costs and the market's pricing for estates in Indonesia even though it is the second-largest planter by market cap in Indonesia. We also see potential improvement in yield prospects for its young estates in the coming years. 18

19 Vol m Plantations Indonesia Astra Agro Lestari AALI IJ / AALI.JK Current Rp20,300 Market Cap Avg Daily Turnover Free Float Target Rp25,000 US$2,649m US$3.22m 20.3% Prev. Target Rp26,000 Rp31,967,324m Rp38,383m 1,575 m shares Up/Downside 23.2% CIMB Analyst(s) Maureen NATASHA T (62) E maureen.natasha@cimb.com Laura TASLIM T (62) E laura@cimb.com Conviction Standing still Astra Agro remains our top pick for its strong corporate governance and undemanding valuations. Production growth from its Kalimantan estates and its downstream venture may support earnings in light of CPO price volatility and rising minimum wages. Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Astra International 79.7 Show Style "View Doc Map" We cut our earnings forecasts by 21-29% for FY14-16 to incorporate: 1) our lower CPO price assumptions, 2) higher labour cost, and 3) slightly higher production in FY This lowers our target price to Rp25,000, now based on 15x CY16 P/E (prev. 16x), in line with its 5-year average. Upgrade from Hold to Add. CPO price downgrade 3Q14 s CPO price correction was stronger than expected due to greater edible oils supply prospects, weaker demand from China and lower crude oil prices. Following a review of the latest fundamentals for edible oils and fats, we lower our average international CPO price forecasts by 5-11% for to US$ per tonne (RM2,390-2,650). For 2015, we expect CPO prices to trend higher due to slower edible oils output growth and restocking activities by customers. We are more bullish about 2016 price prospects as we anticipate stronger biodiesel demand and potential biological tree stress. Production recovery 8M14 production grew 20% yoy and recorded a new high for FFB yield of 14.8tonnes/ha. This was due to the increased new plantings in reaching their prime FFB yield this year before peaking next year. This, coupled with higher CPO price expectations in 2015, should offset the labour cost increase. Downstream to cushion earnings AALI is now the only Indonesia-listed planter that has ventured downstream. This will shield AALI from the weak performance of pure upstream players. The buoyant CPO supply in the market following CPO peak production may also be enough to feed the current massive installed refinery capacity. Proxy for the sector AALI usually leads sector movements as it has the highest market cap among all Indonesia-listed palm oil companies, strong fundamentals and sufficient liquidity to drive multiple re-rating. The stock has plunged 32% from its peak following the steep CPO price correction. This provides an opportunity to accumulate the stock and take advantage of its long-term growth prospects. 31,000 29,000 27,000 25,000 23,000 21,000 19,000 17, Source: Bloomberg Price Close Relative to JCI (RHS) Oct-13 Jan-14 Apr-14 Jul week share price range 20, ,600 29,675 Current 25,000 Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (Rpb) 11,564 12,675 15,717 16,787 18,382 Operating EBITDA (Rpb) 3,932 3,420 4,215 4,206 4,838 Net Profit (Rpb) 2,410 1,801 2,294 2,314 2,661 Core EPS (Rp) 1,495 1,304 1,437 1,459 1,690 Core EPS Growth (0.6%) (12.8%) 10.2% 1.5% 15.8% FD Core P/E (x) DPS (Rp) Dividend Yield 3.55% 2.43% 1.90% 2.69% 2.99% EV/EBITDA (x) P/FCFE (x) NA Net Gearing 7.9% 19.6% 14.7% 14.7% 8.4% P/BV (x) ROE 27.4% 21.7% 21.3% 19.2% 20.1% % Change In Core EPS Estimates (21.1%) (29.1%) (24.3%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

20 Astra Agro Lestari Indonesia Profit & Loss (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues 12,675 15,717 16,787 18,382 Gross Profit 4,082 4,617 4,773 5,406 Operating EBITDA 3,420 4,215 4,206 4,838 Depreciation And Amortisation (416) (884) (801) (921) Operating EBIT 3,005 3,332 3,405 3,917 Financial Income/(Expense) (54) (61) (75) (72) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) (345) (1) Profit Before Tax (pre-ei) 2,605 3,312 3,352 3,845 Exceptional Items Pre-tax Profit 2,605 3,312 3,352 3,845 Taxation (702) (893) (903) (1,036) Exceptional Income - post-tax Profit After Tax 1,903 2,420 2,449 2,809 Minority Interests (102) (126) (135) (147) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit 1,801 2,294 2,314 2,661 Recurring Net Profit 2,053 2,263 2,298 2,661 Fully Diluted Recurring Net Profit 2,053 2,263 2,298 2,661 Balance Sheet (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents Total Debtors Inventories 803 1,037 1,123 1,213 Total Other Current Assets Total Current Assets 1,692 1,895 1,628 1,870 Fixed Assets 6,494 7,898 8,921 9,425 Total Investments Intangible Assets Total Other Non-Current Assets 6,722 6,776 7,284 7,716 Total Non-current Assets 13,271 14,721 16,251 17,186 Short-term Debt 2,152 1,345 1,323 1,323 Current Portion of Long-Term Debt Total Creditors ,065 1,155 Other Current Liabilities 819 1,028 1,077 1,199 Total Current Liabilities 3,719 3,353 3,464 3,677 Total Long-term Debt 571 1, Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities 900 1,350 1, Total Provisions Total Liabilities 4,655 4,739 4,700 4,341 Shareholders' Equity 9,895 11,378 12,545 13,933 Minority Interests Total Equity 10,268 11,877 13,179 14,715 Cash Flow (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA 3,420 4,215 4,206 4,838 Cash Flow from Invt. & Assoc Change In Working Capital 4,871 4,817 4,305 4,965 (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow (4,405) (4,855) (4,102) (4,710) Net Interest (Paid)/Received (64) (61) (75) (72) Tax Paid (702) (893) (903) (1,036) Cashflow From Operations 3,120 3,224 3,430 3,986 Capex (2,856) (2,964) (2,400) (1,936) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing (2,856) (2,964) (2,400) (1,936) Debt Raised/(repaid) 1,751 (356) (173) (571) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid (1,034) (811) (1,147) (1,273) Preferred Dividends Other Financing Cashflow (539) 822 (77) (82) Cash Flow From Financing 179 (345) (1,397) (1,926) Total Cash Generated 443 (84) (367) 124 Free Cashflow To Equity 2,015 (96) 857 1,479 Free Cashflow To Firm ,130 2,132 Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth 9.6% 24.0% 6.8% 9.5% Operating EBITDA Growth (13.0%) 23.3% (0.2%) 15.0% Operating EBITDA Margin 27.0% 26.8% 25.1% 26.3% Net Cash Per Share (Rp) (1,279) (1,106) (1,229) (788) BVPS (Rp) 6,283 7,225 7,966 8,848 Gross Interest Cover Effective Tax Rate 26.9% 26.9% 26.9% 26.9% Net Dividend Payout Ratio 43.0% 26.5% 37.2% 35.9% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 21.3% 19.7% 18.3% 19.0% ROCE (%) 25.8% 24.6% 23.1% 24.7% 12-month Forward Rolling FD P/E (x) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Astra Agro Lestari London Sumatra Salim Invomas Pratama Sampoerna Agro Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Planted Estates (ha) 281, , , ,235 Mature Estates (ha) 247, , , ,311 FFB Yield (tonnes/ha) FFB Output Growth (%) -6.8% 4.0% 5.2% 2.9% CPO Price (US$/tonne)

21 Vol m Plantations Malaysia Felda Global Ventures FGV MK / FGVH.KL Current RM3.25 Market Cap Avg Daily Turnover Free Float Target RM3.47 US$3,617m US$1.55m 45.2% Prev. Target RM3.69 RM11,856m RM4.99m 3,648 m shares Up/Downside 6.8% CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Federal Land Development Authority 38.7 EPF 8.4 Lembaga Tabung Haji 7.8 Show Style "View Doc Map" Upgrade to Hold We are raising our rating for FGV to Hold from Reduce as we believe the 16% decline in its share price since our ratings downgrade has sufficiently priced in our concerns over the acquisition of Asian Plantations and the weaker CPO price prospects. Factoring in our CPO price downgrade, we cut our FY14-16 EPS forecasts by 17-37%. This, coupled with the rollover of our SOP-based valuation to end-2015, leads to a 6% decline in our target price (which is based on a 20% discount to SOP) to RM3.47. The stock is a Hold due to its unexciting near-term prospects. CPO price downgrades We lower our average CPO price forecasts for Malaysia by 10-11% to RM2,390 per tonne for 2014 and RM2,460 per tonne for 2015 to reflect the higher edible oil supplies, slower edible oils demand growth, and weaker crude oil prices. For 2016, we have lowered our CPO price forecasts by 5% to RM2,650 per tonne. This is negative for FGV as the group derives most of its earnings from its estates business. Our estimates reveal that every RM100 per tonne change in CPO price lowers the group's pretax profit by RM100m. Acquisition of APL FGV has recently acquired the London-listed Asian Plantations Ltd (APL), through a voluntary cash offer, Conviction based on the price of 2.20 per share. This would value the APL group at 120m (RM628m). We are negative on this acquisition as the pricing appears expensive on an EV/ha of RM75k, which is significantly higher than the EV/ha of comparable listed peers in Sarawak. In addition, APL is loss- making and highly geared (2.9x), and we estimate the acquisition to be 7% earnings dilutive for FGV. We are also concerned that the acquisition would weaken FGV's financial position, especially at times when CPO prices are low. Since we highlighted this risk, the share price of FGV has fallen by 16% to reflect these concerns. Unexciting earnings FGV posted a 1% drop in its 9M14 FFB output despite the additional contribution from Pontian United Plantation estates. The weaker output and lower CPO selling prices are likely to dampen near-term earnings of the group. We expect the group to post weaker earnings in FY14 due to lower CPO prices, but earnings should recover in FY15 on higher FFB output growth Price Close Relative to FBMKLCI (RHS) Oct-13 Jan-14 Apr-14 Jul-14 Source: Bloomberg 52-week share price range Current 3.47 Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (RMm) 12,886 12,568 13,025 12,452 13,296 Operating EBITDA (RMm) 1,080 1,196 1,205 1,267 1,506 Net Profit (RMm) Core EPS (RM) Core EPS Growth (49.1%) (33.0%) (30.2%) 11.2% 34.8% FD Core P/E (x) DPS (RM) Dividend Yield 1.69% 4.92% 1.82% 2.03% 2.73% EV/EBITDA (x) P/FCFE (x) Net Gearing (49.9%) (12.1%) (14.7%) (18.7%) (20.9%) P/BV (x) ROE 13.7% 9.8% 6.5% 7.0% 9.0% % Change In Core EPS Estimates (16.7%) (37.0%) (22.4%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

22 Felda Global Ventures Malaysia Profit & Loss (RMm) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues 12,568 13,025 12,452 13,296 Gross Profit 850 1,847 1,942 2,217 Operating EBITDA 1,196 1,205 1,267 1,506 Depreciation And Amortisation (110) (120) (131) (143) Operating EBIT 1,086 1,085 1,137 1,363 Financial Income/(Expense) 61 (109) (103) (93) Pretax Income/(Loss) from Assoc. (2) (60) (50) (50) Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 1, ,220 Exceptional Items Pre-tax Profit 1, ,220 Taxation (399) (244) (253) (318) Exceptional Income - post-tax Profit After Tax 1, Minority Interests (126) (240) (250) (255) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit Balance Sheet (RMm) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents 5,202 5,273 5,519 5,628 Total Debtors 1,352 1,401 1,339 1,430 Inventories 1,740 1,803 1,724 1,841 Total Other Current Assets Total Current Assets 9,049 9,232 9,337 9,654 Fixed Assets 5,683 5,913 6,132 6,339 Total Investments 1,344 1,177 1, Intangible Assets 3,324 3,324 3,324 3,324 Total Other Non-Current Assets 1,322 1,322 1,322 1,322 Total Non-current Assets 11,673 11,735 11,792 11,830 Short-term Debt 1,638 1,638 1,638 1,638 Current Portion of Long-Term Debt Total Creditors 1,988 2,037 1,975 2,066 Other Current Liabilities Total Current Liabilities 4,144 4,193 4,132 4,223 Total Long-term Debt 2,486 2,257 2,028 1,799 Hybrid Debt - Debt Component Total Other Non-Current Liabilities 4,526 4,496 4,457 4,372 Total Non-current Liabilities 7,011 6,752 6,485 6,171 Total Provisions Total Liabilities 11,776 11,566 11,237 11,013 Shareholders' Equity 6,571 6,787 7,027 7,351 Minority Interests 2,375 2,615 2,865 3,120 Total Equity 8,946 9,402 9,892 10,471 Cash Flow (RMm) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA 1,196 1,205 1,267 1,506 Cash Flow from Invt. & Assoc Change In Working Capital 60 (63) 79 (117) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow (360) Net Interest (Paid)/Received 48 (109) (103) (93) Tax Paid (294) (244) (253) (318) Cashflow From Operations 726 1,226 1,433 1,427 Capex (252) (350) (350) (350) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments (1,541) (1,541) (1,541) (1,541) Other Investing Cashflow (38) 1,181 1,173 1,126 Cash Flow From Investing (1,280) (710) (718) (765) Debt Raised/(repaid) 1,234 (229) (229) (229) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid (266) (216) (240) (324) Preferred Dividends Other Financing Cashflow (1,093) Cash Flow From Financing (125) (445) (469) (553) Total Cash Generated (679) Free Cashflow To Equity Free Cashflow To Firm (458) Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth (2.5%) 3.6% (4.4%) 6.8% Operating EBITDA Growth 10.7% 0.8% 5.2% 18.8% Operating EBITDA Margin 9.5% 9.3% 10.2% 11.3% Net Cash Per Share (RM) BVPS (RM) Gross Interest Cover Effective Tax Rate 26.5% 26.6% 25.7% 26.0% Net Dividend Payout Ratio 85.5% 50.0% 50.0% 50.0% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 18.1% 9.3% 9.5% 11.3% ROCE (%) 10.9% 8.5% 8.7% 10.1% 12-month Forward Rolling FD P/E (x) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Planted Estates (ha) 323, , , ,588 Mature Estates (ha) 255, , , ,864 FFB Yield (tonnes/ha) FFB Output Growth (%) 2.1% -2.0% 3.2% 2.7% CPO Price (US$/tonne) Felda Global Ventures Genting Plantations IOI Corporation 22

23 Vol m Plantations Singapore First Resources Ltd FR SP / FRLD.SI Current S$1.91 Market Cap Avg Daily Turnover Free Float Target S$2.32 US$2,365m US$3.40m 31.3% Prev. Target S$2.50 S$3,018m S$4.27m 1,584 m shares Up/Downside 21.8% CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Eight Capital Inc 63.2 FMR 6.3 DB Intl Trust Singapore 5.6 Show Style "View Doc Map" Conviction Opportunity knocks The group's weaker-than-expected 1H14 results, coupled with concerns over the dry weather in Riau and lower CPO prices, have led to sharp corrections in its share price in recent months. We view this as a good opportunity to accumulate the stock at an attractive level. The group boasts superior operating efficiency over peers, strong FFB output growth prospects due to its young estates, and good management. Factoring in our CPO price revisions and lower FFB yields, we cut our FY14-16 EPS forecasts by 10-29%. This, coupled with the rollover of our valuations to end-2015, has led to a 7% decline in our target price, based on 12.3x CY16 P/E (1 sd above its 4- year mean). The stock remains an Add and our top pick in the regional space. CPO price downgrades We scale back our average CPO price forecasts by 10-11% to US$840 per tonne for 2014 and US$850 per tonne for 2015 to reflect larger-thanexpected global edible oil supplies, slower edible oils demand growth, and weaker crude oil prices. For 2016, we have lowered our CPO price forecasts by 5% to RM910 per tonne. This is negative for First Resources as the group derives 87% of its earnings from its plantations division and every US$10 per tonne change in CPO price would lower its pretax profit forecasts by US$5.2m. Improving FFB yields First Resources recorded a 14% yoy rise in FFB production from its nucleus estates in Sep 2014, thanks to higher FFB yields (+5% yoy) and newly mature areas. For 9M14, the group posted an 11% increase in FFB production from its nucleus estates, broadly in line with our projections. We are positive on this as it signals that the group's estates in Riau are recovering from the poor weather, and we could see higher production from these estates in To recap, monthly FFB yields at its estates began to trend lower yoy since Sep 12, due to tree stress. Integrated palm oil player The group added a new 600k-tonne refinery in 2H13. This raises its refining capacity to 850k tonnes, allowing the group to refine all of its CPO in-house and extract better profit margins for its palm products. Its biodiesel plant in Indonesia also stands to benefit from the higher demand in the country, in line with the government's move to raise its biodiesel mandates Source: Bloomberg Price Close Relative to FSSTI (RHS) Oct-13 Jan-14 Apr-14 Jul week share price range Current 2.32 Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (US$m) Operating EBITDA (US$m) Net Profit (US$m) Core EPS (US$) Core EPS Growth 20.5% (0.4%) (29.7%) 20.2% 27.2% FD Core P/E (x) DPS (US$) Dividend Yield 2.01% 2.16% 1.94% 2.33% 2.96% EV/EBITDA (x) P/FCFE (x) 9.40 NA Net Gearing 11.5% 20.9% 18.2% 15.9% 11.0% P/BV (x) ROE 21.1% 20.7% 14.6% 15.8% 17.8% % Change In Core EPS Estimates (9.6%) (28.6%) (25.0%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

24 First Resources Ltd Singapore Profit & Loss (US$m) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues Gross Profit Operating EBITDA Depreciation And Amortisation (27.6) (24.4) (27.3) (29.9) Operating EBIT Financial Income/(Expense) (18.3) (19.6) (19.6) (19.6) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) Profit Before Tax (pre-ei) Exceptional Items Pre-tax Profit Taxation (67.5) (54.1) (61.7) (78.2) Exceptional Income - post-tax Profit After Tax Minority Interests (7.9) (9.8) (11.9) (14.2) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit Balance Sheet (US$m) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets 965 1,065 1,165 1,265 Total Non-current Assets 1,370 1,506 1,638 1,768 Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity 993 1,100 1,229 1,392 Minority Interests Total Equity 1,040 1,157 1,297 1,475 Cash Flow (US$m) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital (34.6) 26.5 (3.2) (3.5) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow (41.9) Net Interest (Paid)/Received (17.8) (19.6) (19.6) (19.6) Tax Paid (65.3) (54.1) (61.7) (78.2) Cashflow From Operations Capex (181.0) (160.0) (160.0) (160.0) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow (54.5) Cash Flow From Investing (235.5) (160.0) (160.0) (160.0) Debt Raised/(repaid) (55.3) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid (51.0) (45.8) (55.0) (70.0) Preferred Dividends Other Financing Cashflow Cash Flow From Financing (89.7) (45.8) (55.0) (70.0) Total Cash Generated (125.2) Free Cashflow To Equity (90.8) Free Cashflow To Firm (14.3) Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth 3.8% (22.0%) 21.8% 19.6% Operating EBITDA Growth (3.0%) (27.5%) 16.6% 23.5% Operating EBITDA Margin 57.4% 53.3% 51.1% 52.7% Net Cash Per Share (US$) (0.14) (0.13) (0.13) (0.10) BVPS (US$) Gross Interest Cover Effective Tax Rate 21.5% 25.0% 24.0% 24.0% Net Dividend Payout Ratio 21.4% 30.0% 30.0% 30.0% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 19.2% 13.7% 14.9% 17.1% ROCE (%) 20.6% 14.9% 16.1% 18.4% 12-month Forward Rolling FD P/E (x) Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Planted Estates (ha) 170, , , ,596 Mature Estates (ha) 120, , , ,744 FFB Yield (tonnes/ha) FFB Output Growth (%) 6.5% 10.0% 14.2% 15.9% CPO Price (US$/tonne) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 First Resources Ltd Golden Agri-Resources Indofood Agri Resources 24

25 Vol m Plantations Malaysia Genting Plantations GENP MK / GENP.KL Current RM10.18 Market Cap Avg Daily Turnover Free Float Target RM10.80 US$2,390m US$1.48m 31.0% Prev. Target RM11.10 RM7,834m RM4.76m m shares Up/Downside 6.1% CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Genting 53.6 Employees Provident Fund 15.4 Show Style "View Doc Map" Conviction Growing Indonesian exposure We are positive on the group's aggressive expansion into Indonesia, which has started to bear fruits. However, this is offset by concerns that the Indonesian government may impose a foreign ownership limit on its Indonesian estates. We cut our FY14-16 EPS forecasts by 6-15% to account for our downgrade in CPO price forecasts. In line with our earnings downgrades, we lower our SOP-based target price (which has been rolled forward to end-2015) to RM The stock remains a Hold as it is fairly valued at the current level. CPO price downgrades We scale back our average CPO price forecasts for Malaysia by 10-11% to RM2,390 per tonne for 2014 and RM2,460 per tonne for 2015 to reflect larger-than-expected global edible oil supplies, slower edible oils demand growth and weaker crude oil prices. For 2016, we lower our CPO price forecasts by 5% to RM2,650 per tonne. This is negative for Genting Plantations as the group derives 98% of its earnings from its plantations division, and every RM100 per tonne change in the CPO price would lower its pretax profit forecasts by RM43.8m. Strong production growth The group is expected to deliver strong output growth in the coming years as its new plantings in Indonesia are coming into maturity. Currently, 49% of the group's planted oil palm estates are located in Indonesia and only 30% of the planted areas in Indonesia are mature. We expect improving yields from its young estates and new mature areas to drive the future output growth of its estates. In 2014, the group is expected to register a 10-12% increase in FFB output, mostly from its Indonesian estates. Potential foreign limit rule The recent draft proposal to impose a 30% foreign limit on Indonesian estates could be negative for Genting Plantations as this would require it to pare down its stakes in its Indonesian estates. The good news is that the government has decided not to carry out the proposal, but it could revisit this issue in the future. Downstream strategy The group has recently expanded its downstream and is expected to launch its biorefinery project in Lahad Datu soon, which may complement its biodiesel plants Price Close Relative to FBMKLCI (RHS) Oct-13 Jan-14 Apr-14 Jul-14 Source: Bloomberg 52-week share price range Current Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (RMm) 1,233 1,384 1,965 2,168 2,615 Operating EBITDA (RMm) Net Profit (RMm) Core EPS (RM) Core EPS Growth (24.7%) (12.4%) 17.5% 7.4% 18.8% FD Core P/E (x) DPS (RM) Dividend Yield 1.23% 0.89% 0.98% 1.16% 1.16% EV/EBITDA (x) P/FCFE (x) NA Net Gearing (9.53%) (1.75%) (1.47%) (1.80%) (7.34%) P/BV (x) ROE 9.9% 8.4% 9.3% 9.2% 10.1% % Change In Core EPS Estimates (11.0%) (14.6%) (6.2%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

26 Genting Plantations Malaysia Profit & Loss (RMm) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues 1,384 1,965 2,168 2,615 Gross Profit Operating EBITDA Depreciation And Amortisation (68) (38) (39) (40) Operating EBIT Financial Income/(Expense) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) Profit Before Tax (pre-ei) Exceptional Items (102) Pre-tax Profit Taxation (80) (110) (118) (139) Exceptional Income - post-tax Profit After Tax Minority Interests 8 (7) (7) (7) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit Balance Sheet (RMm) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents ,049 Total Debtors Inventories Total Other Current Assets Total Current Assets 1,334 1,373 1,426 1,795 Fixed Assets 1,110 1,535 1,796 1,855 Total Investments Intangible Assets Total Other Non-Current Assets 2,242 2,038 2,038 2,038 Total Non-current Assets 3,521 3,837 4,098 4,157 Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities 1,251 1,131 1,160 1,234 Shareholders' Equity 3,426 3,851 4,128 4,475 Minority Interests Total Equity 3,604 4,079 4,364 4,718 Cash Flow (RMm) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital 13.6 (213.4) (5.8) (26.2) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow (34.3) Net Interest (Paid)/Received Tax Paid (76.2) (109.5) (117.7) (139.4) Cashflow From Operations Capex (423.3) (300.0) (300.0) (100.0) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow (5.2) Cash Flow From Investing (428.5) (300.0) (300.0) (100.0) Debt Raised/(repaid) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid (318.7) (68.4) (75.5) (89.6) Preferred Dividends Other Financing Cashflow Cash Flow From Financing (34.8) 51.4 (75.3) (84.6) Total Cash Generated (120.8) (79.7) Free Cashflow To Equity 20.3 (131.2) Free Cashflow To Firm (68.3) (131.2) Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth 12.2% 42.0% 10.3% 20.6% Operating EBITDA Growth 1.6% 10.0% 7.5% 17.9% Operating EBITDA Margin 31.0% 24.0% 23.4% 22.9% Net Cash Per Share (RM) BVPS (RM) Gross Interest Cover Effective Tax Rate 26.8% 24.0% 24.0% 24.0% Net Dividend Payout Ratio 20.7% 22.2% 24.5% 20.6% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 11.1% 12.6% 12.1% 13.5% ROCE (%) 8.7% 9.7% 9.8% 10.9% 12-month Forward Rolling FD P/E (x) Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Planted Estates (ha) 117, , , ,123 Mature Estates (ha) 74,500 86,317 96, ,317 FFB Yield (tonnes/ha) FFB Output Growth (%) 12.9% 11.5% 11.1% 17.4% CPO Price (US$/tonne) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Genting Plantations Hap Seng Plantations IOI Corporation 26

27 Vol m Plantations Singapore Golden Agri-Resources GGR SP / GAGR.SI Current S$0.49 Market Cap Avg Daily Turnover Free Float Target S$0.53 US$4,879m US$10.27m 50.0% Prev. Target S$0.58 S$6,226m S$12.90m 12,838 m shares Up/Downside 9.3% CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held The Widjaja Family Master Trust 50.0 Show Style "View Doc Map" Conviction Growing downstream exposure Golden Agri stands out among the regional planters as a proxy to CPO prices for its liquidity (the highest) and palm oil estate size (second largest planted area). As such, its share price has been one of the worst hit by the recent decline in CPO prices. On top of this, there are concerns over the 1H14 losses registered by its China oilseeds division and slowing output growth. Factoring in our CPO price revisions, we cut our FY14-16 EPS forecasts by 9-19%. This, coupled with the rollover of our valuation (based on 13x forward P/E) to end-2015, has led to a 8.6% decline in its target price. The stock remains a Hold as it is trading close to our target price and lacks near-term catalysts. CPO price revisions We scale back our average CPO price forecasts for Malaysia by 10-11% to US$840 per tonne for 2014 and US$850 per tonne for 2015 to reflect larger-than-expected global edible oil supplies, slower edible oils demand growth, and weaker crude oil prices. For 2016, we have lowered our CPO price forecasts by 5% to US$910 per tonne. This is negative for Golden Agri, which derives 80% of its earnings from its palm oil estates and mill. We estimate every US$10 per tonne change in CPO price would lower its pretax profit forecasts by US$16m. 1H14 losses in oilseeds The group posted a wider loss of US$40m from its oilseeds business in China against a US$3.3m loss in 1Q14 due to negative crush margins and a challenging operating environment. This is negative but the group is evaluating various ways to improve its performance. Expanding downstream The group has been putting a lot more emphasis on its downstream business over the past year. This is evident from its hiring of the Cargill trading team from Singapore and senior personnel from Louis Dreyfus at the end of Golden Agri has also beefed up its investments in downstream assets. M&A to drive growth Golden Agri revealed that the slowdown in new plantings in recent years was due to tighter new regulations and a slower land compensation process. It is targeting new plantings of around 10k per ha for this year and hopes to supplement this with M&As at reasonable prices. Overall, it aims to grow its oil palm plantations by 20k-30k ha in 2014 through organic growth and acquisitions Price Close Relative to FSSTI (RHS) Oct-13 Jan-14 Apr-14 Jul-14 Source: Bloomberg 52-week share price range Current 0.53 Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (US$m) 6,052 6,585 6,708 7,041 7,711 Operating EBITDA (US$m) Net Profit (US$m) Core EPS (US$) Core EPS Growth (24.7%) (32.3%) (0.4%) 10.9% 16.5% FD Core P/E (x) DPS (US$) Dividend Yield 2.30% 1.91% 1.97% 2.18% 2.54% EV/EBITDA (x) P/FCFE (x) NA Net Gearing 13.6% 22.7% 21.5% 23.3% 25.6% P/BV (x) ROE 5.46% 3.72% 3.62% 3.91% 4.43% % Change In Core EPS Estimates (11.4%) (19.4%) (9.0%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

28 Golden Agri-Resources Singapore Profit & Loss (US$m) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues 6,585 6,708 7,041 7,711 Gross Profit 1,363 1,389 1,458 1,596 Operating EBITDA Depreciation And Amortisation (134) (157) (157) (157) Operating EBIT Financial Income/(Expense) (89) (132) (130) (145) Pretax Income/(Loss) from Assoc. (1) Non-Operating Income/(Expense) Profit Before Tax (pre-ei) Exceptional Items Pre-tax Profit Taxation (114) (109) (134) (156) Exceptional Income - post-tax Profit After Tax Minority Interests (5) (7) (7) (8) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit Balance Sheet (US$m) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents Total Debtors 1,180 1,018 1,124 1,261 Inventories Total Other Current Assets Total Current Assets 2,539 2,445 2,664 2,896 Fixed Assets 2,351 2,744 3,138 3,531 Total Investments Intangible Assets Total Other Non-Current Assets 7,988 7,988 7,988 7,988 Total Non-current Assets 11,610 12,005 12,400 12,796 Short-term Debt 1,060 1,060 1,360 1,660 Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities 1,884 1,954 2,311 2,634 Total Long-term Debt 1,521 1,521 1,521 1,521 Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities 1,577 1,578 1,580 1,586 Total Provisions 1,884 1,884 1,884 1,884 Total Liabilities 5,345 5,416 5,776 6,105 Shareholders' Equity 8,721 8,944 9,193 9,482 Minority Interests Total Equity 8,803 9,034 9,289 9,587 Cash Flow (US$m) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA Cash Flow from Invt. & Assoc Change In Working Capital (385) 219 (86) (186) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received (89) (132) (130) (145) Tax Paid (114) (109) (134) (156) Cashflow From Operations Capex (478) (550) (550) (550) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing (478) (550) (550) (550) Debt Raised/(repaid) 726 (0) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid (93) (96) (106) (124) Preferred Dividends Other Financing Cashflow (417) Cash Flow From Financing 216 (96) Total Cash Generated (232) Free Cashflow To Equity Free Cashflow To Firm (342) (1) Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth 8.81% 1.86% 4.97% 9.51% Operating EBITDA Growth (17.1%) 16.9% 8.2% 12.3% Operating EBITDA Margin 9.4% 10.8% 11.1% 11.4% Net Cash Per Share (US$) (0.16) (0.15) (0.17) (0.19) BVPS (US$) Gross Interest Cover Effective Tax Rate 26.5% 25.0% 27.0% 27.0% Net Dividend Payout Ratio 34.0% 30.0% 30.0% 30.0% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 3.46% 3.77% 4.11% 4.57% ROCE (%) 3.90% 4.30% 4.61% 5.11% 12-month Forward Rolling FD P/E (x) Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Planted Estates (ha) 371, , , ,102 Mature Estates (ha) 338, , , ,538 FFB Yield (tonnes/ha) FFB Output Growth (%) -5.3% 8.2% 6.5% 3.7% CPO Price (US$/tonne) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 First Resources Ltd Golden Agri-Resources Indofood Agri Resources 28

29 Vol m Plantations Malaysia Hap Seng Plantations HAPL MK / HAPP.KL Current RM2.53 Market Cap Avg Daily Turnover Free Float Target RM2.46 US$617.2m US$0.04m 24.9% Prev. Target RM2.56 RM2,023m RM0.12m m shares Up/Downside -2.8% CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Hap Seng Consolidated Berhad 52.4 Innoprise Corporation 15.0 Employees Provident Fund 7.7 Show Style "View Doc Map" Conviction Supported by dividend yields We retain our Hold call on Hap Seng Plantations, following our CPO price downgrades as we think that its share price will be supported by its 4-5% dividend yield in FY14-16 and undemanding EV/ha of RM51k for planted area, which is well below the recent market transactions for estates. We prune our FY14-16 EPS forecasts by 7-17% to account for our lower CPO price assumptions. We lowered our target price to RM2.46 (based on 10% discount to historical average of 13.5x FY15 P/E) following our earnings adjustments and after rolling over our valuations to end CPO price downgrades We lowered our average CPO price forecasts for Malaysia by 10-11% to RM2,390 per tonne in 2014 and RM2,460 per tonne in 2015 to reflect the larger-than-expected global edible oil supplies, slower edible oils demand growth and weaker crude oil prices. For 2016, we have lowered our CPO price forecast by 5% to RM2,650 per tonne. This is negative for Hap Seng Plantations as the group derives 100% of its earnings from its plantations division. We estimate that every RM100 per tonne change in CPO price would lower its pretax profit by RM17m. Higher production in FY14 The group posted a 7% jump in FFB output in 9M14 due to the improvement in yields from its estates. This is positive as it is above our expectations. We believe that the improved yields were due to better weather conditions at its estates. We believe that future output growth for this group would have to come from M&A or further improvement in FFB yields from its replanting efforts. This is because the majority of its estates are already at prime yielding age. The weighted average age of the group's estates is 15 years. Attractive EV/ha of RM51k The stock s key attractions are its low P/BV of 1.1x and undemanding EV/ha of RM51k, which is below the reported prices for transacted estates in Sabah of up to RM80k. This suggests that the stock is undervalued from an assets point of view. As such, we see good share price support. However, we maintain our Hold call due to its dimmer earnings prospects Price Close Relative to FBMKLCI (RHS) Oct-13 Jan-14 Apr-14 Jul-14 Source: Bloomberg 52-week share price range Current Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (RMm) Operating EBITDA (RMm) Net Profit (RMm) Core EPS (RM) Core EPS Growth (44.5%) (30.5%) 41.2% 2.2% 15.0% FD Core P/E (x) DPS (RM) Dividend Yield 4.16% 3.95% 4.08% 4.17% 4.80% EV/EBITDA (x) P/FCFE (x) Net Gearing (6.9%) (9.8%) (11.0%) (12.0%) (13.2%) P/BV (x) ROE 7.45% 5.11% 7.06% 7.01% 7.83% % Change In Core EPS Estimates (12.2%) (17.0%) (7.2%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

30 Hap Seng Plantations Malaysia Profit & Loss (RMm) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues Gross Profit Operating EBITDA Depreciation And Amortisation (28.2) (29.0) (34.9) (37.0) Operating EBIT Financial Income/(Expense) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) Profit Before Tax (pre-ei) Exceptional Items Pre-tax Profit Taxation (40.2) (47.4) (46.9) (51.1) Exceptional Income - post-tax Profit After Tax Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit Balance Sheet (RMm) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets 1,354 1,338 1,338 1,338 Total Non-current Assets 1,932 1,927 1,955 1,983 Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity 1,924 1,979 2,035 2,100 Minority Interests Total Equity 1,924 1,979 2,035 2,100 Cash Flow (RMm) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital 16.8 (32.0) (1.3) 46.9 (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow 0.1 (0.0) (0.0) (0.0) Net Interest (Paid)/Received Tax Paid (24.0) (47.4) (46.9) (51.1) Cashflow From Operations Capex (39.4) (40.0) (62.9) (65.0) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments (7.5) Other Investing Cashflow Cash Flow From Investing (44.5) (24.3) (62.9) (65.0) Debt Raised/(repaid) Proceeds From Issue Of Shares Shares Repurchased (0.0) 0.0 (7.0) (7.0) Dividends Paid (64.0) (82.6) (84.4) (97.1) Preferred Dividends Other Financing Cashflow (10.5) Cash Flow From Financing (64.0) (93.2) (84.4) (97.1) Total Cash Generated Free Cashflow To Equity Free Cashflow To Firm Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth (15.8%) 17.2% 2.5% 7.7% Operating EBITDA Growth (24.5%) 29.8% 4.0% 12.0% Operating EBITDA Margin 36.6% 40.5% 41.1% 42.7% Net Cash Per Share (RM) BVPS (RM) Gross Interest Cover N/A N/A N/A N/A Effective Tax Rate 29.2% 25.6% 25.0% 24.0% Net Dividend Payout Ratio 82.0% 60.0% 60.0% 60.0% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 6.9% 9.4% 9.4% 10.5% ROCE (%) 6.55% 8.62% 8.52% 9.31% 12-month Forward Rolling FD P/E (x) Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Planted Estates (ha) 35,551 35,851 36,151 36,151 Mature Estates (ha) 31,070 31,421 31,421 30,275 FFB Yield (tonnes/ha) FFB Output Growth (%) 5.8% 5.9% 1.1% 0.0% CPO Price (US$/tonne) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Genting Plantations Hap Seng Plantations IOI Corporation 30

31 Vol m Plantations Singapore Indofood Agri Resources IFAR SP / IFAR.SI Current S$0.81 Market Cap Avg Daily Turnover Free Float Target S$0.82 US$899.7m US$1.04m 30.4% Prev. Target S$1.02 S$1,148m S$1.31m 1,448 m shares Up/Downside 1.2% CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Indofood Singapore Holdings 69.6 Show Style "View Doc Map" Conviction Going for a thicker sugar coating Indofood Agri has expanded its sugar businesses beyond Indonesia through its investment in sugar assets via CMAA and Roxas Holdings. We take a positive long-term view of this as it will help to expand its earnings base and reduce its earnings reliance on SIMP. We lower our FY14-16 EPS forecasts by 5-17% to reflect our weaker CPO price assumptions. The earnings cuts and the downgrade in our target price for its plantation unit, SIMP reduce our SOP-based target price for Indofood Agri to S$0.82. We maintain our Hold call on the stock and prefer SIMP for direct exposure to the group's plantation business. CPO price downgrades We lower our average CPO price forecasts by 10% to US$840 per tonne for 2014 and 11% to US$850 for 2015 to reflect larger-than-expected global edible oil supplies, slower demand growth for edible oils and weaker crude oil prices. For 2016, we cut our CPO price forecast by 5% to US$910 per tonne. This is negative for Indofood Agri, which derives the bulk of its earnings from its 72.6%-owned plantation arm, SIMP. Recovering FFB yields SIMP posted a 23% yoy rise in FFB output in 2Q14, suggesting continued ebbing of social issues at its estates. Reduced social issues, improved weather and the absence of biological tree stress have raised yields in its estates in south Sumatera and Kalimantan. Overall, SIMP's 1H14 FFB production growth of 18% from its nucleus estates was above expectations. We are positive on this as it will help the group rein in the production costs at its estates which have been on the rise. Stronger cooking oil profit The lower CPO price will be positive for its edible oils and fats division as there is a lag in passing on the lower raw material costs to consumers. This will partially buffer the impact of lower plantation earnings. Expanding sugar exposure Last year, the group started making acquisitions outside Indonesia. It bought a 50% stake in CMAA, a sugar and ethanol producer in Brazil for approximately US$67m, to boost its earnings base and access CMAA's sugar cultivation practice. The group has also taken an effective stake of 10.2% in Roxas Holdings Inc, the largest integrated sugar business in the Philippines for US$17.4m Source: Bloomberg Price Close Relative to FSSTI (RHS) Oct-13 Jan-14 Apr-14 Jul week share price range Current Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (Rpb) 13,845 13,280 14,917 15,923 17,817 Operating EBITDA (Rpb) 3,282 2,620 3,367 2,839 3,396 Net Profit (Rpb) 1, Normalised EPS (Rp) Normalised EPS Growth (3.7%) (32.8%) 22.4% (7.8%) 28.2% FD Normalised P/E (x) DPS (Rp) Dividend Yield 0.001% 0.000% 0.000% 0.000% 0.000% EV/EBITDA (x) P/FCFE (x) NA NA NA NA NA Net Gearing 7.5% 21.9% 23.1% 23.7% 22.9% P/BV (x) ROE 7.80% 4.99% 5.85% 5.11% 6.19% % Change In Normalised EPS Estimates (7.9%) (16.7%) (5.1%) Normalised EPS/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

32 Indofood Agri Resources Singapore Profit & Loss (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues 13,280 14,917 15,923 17,817 Gross Profit 3,204 3,599 3,841 4,298 Operating EBITDA 2,620 3,367 2,839 3,396 Depreciation And Amortisation (783) (1,036) (610) (610) Operating EBIT 1,837 2,331 2,229 2,786 Financial Income/(Expense) (354) (388) (438) (488) Pretax Income/(Loss) from Assoc. (6) Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 1,478 1,949 1,796 2,303 Exceptional Items (139) Pre-tax Profit 1,338 1,949 1,796 2,303 Taxation (380) (507) (467) (599) Exceptional Income - post-tax Profit After Tax 959 1,442 1,329 1,704 Minority Interests (408) (598) (552) (707) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Preference Dividends (Australia) Net Profit Normalised Net Profit 1,098 1,442 1,329 1,704 Fully Diluted Normalised Profit Balance Sheet (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents 3,803 3,181 2,728 2,552 Total Debtors 1,433 1,610 1,718 1,922 Inventories 1,568 1,985 2,119 2,371 Total Other Current Assets Total Current Assets 6,938 6,926 6,726 7,025 Fixed Assets 9,781 11,245 13,135 15,025 Total Investments 1,263 1,268 1,273 1,278 Intangible Assets 3,248 3,248 3,248 3,248 Total Other Non-Current Assets 16,476 16,471 16,466 16,462 Total Non-current Assets 30,767 32,230 34,120 36,011 Short-term Debt 4,490 4,490 4,490 4,490 Current Portion of Long-Term Debt Total Creditors 1,937 1,723 1,871 2,087 Other Current Liabilities Total Current Liabilities 6,504 6,290 6,438 6,654 Total Long-term Debt 4,305 4,305 4,305 4,305 Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities 4,860 4,928 4,970 5,049 Total Provisions 3,508 3,663 3,834 4,023 Total Liabilities 14,872 14,881 15,242 15,726 Shareholders' Equity 13,996 14,840 15,618 16,615 Minority Interests 8,837 9,435 9,987 10,694 Total Equity 22,833 24,275 25,605 27,309 Cash Flow (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA 2,620 3,367 2,839 3,396 Cash Flow from Invt. & Assoc. Change In Working Capital 298 (825) (105) (259) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received (333) (388) (438) (488) Tax Paid (749) (507) (467) (599) Cashflow From Operations 2,166 1,654 1,835 2,055 Capex (3,091) (2,500) (2,500) (2,500) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow (1,754) Cash Flow From Investing (4,830) (2,500) (2,500) (2,500) Debt Raised/(repaid) 1, Proceeds From Issue Of Shares Shares Repurchased (212) Dividends Paid (387) Preferred Dividends Other Financing Cashflow Cash Flow From Financing 1, Total Cash Generated (1,545) (622) (452) (176) Free Cashflow To Equity (946) (622) (665) (445) Free Cashflow To Firm (2,146) (273) (42) 228 Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth (4.1%) 12.3% 6.7% 11.9% Operating EBITDA Growth (20.2%) 28.5% (15.7%) 19.6% Operating EBITDA Margin 19.7% 22.6% 17.8% 19.1% Net Cash Per Share (Rp) (3,448) (3,878) (4,190) (4,312) BVPS (Rp) 9,667 10,250 10,787 11,476 Gross Interest Cover Effective Tax Rate 28.4% 26.0% 26.0% 26.0% Net Dividend Payout Ratio NA NA NA NA Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 6.6% 7.6% 6.8% 8.0% ROCE (%) 5.99% 7.00% 6.44% 7.58% 12-month Forward Rolling FD P/E (x) Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Planted Estates (ha) 239, , , ,921 Mature Estates (ha) 176, , , ,956 FFB Yield (tonnes/ha) FFB Output Growth (%) -2.6% 14.7% 8.0% 5.5% CPO Price (US$/tonne) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 First Resources Ltd Golden Agri-Resources Indofood Agri Resources 32

33 Vol m Plantations Malaysia IOI Corporation IOI MK / IOIB.KL Current RM4.73 Market Cap Avg Daily Turnover Free Float Target RM4.32 US$9,180m US$8.79m 45.1% Prev. Target RM4.49 RM30,090m RM28.20m 6,450 m shares Up/Downside -8.7% CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Progressive Holdings Sdn Bhd 44.7 Employees Provident Fund 10.2 Show Style "View Doc Map" Conviction Pricey valuations We are keeping to our Reduce call on this stock due to its rich valuations. We like its management and expect its manufacturing earnings to provide a cushion against lower CPO prices but this is overshadowed by the group's high valuations. Factoring in our CPO price downgrades, we lower our FY6/15-17 EPS forecasts by 5-14% and trim our SOP-based target price to RM4.32, after rolling it over to end The successful demerger of its property division this year allowed the group to unlock its property assets and focus on expanding its palm oil businesses. CPO price downgrades We scale back our average CPO price forecasts for Malaysia by 10-11% to RM2,390 per tonne for 2014 and RM2,460 per tonne for 2015 to reflect larger-than-expected global edible oil supplies, slower edible oils demand growth and weaker crude oil prices. For 2016, we have lowered our CPO price forecasts by 5% to RM2,650 per tonne. This is negative for IOI Corp as we estimate that the group derives around 65% of its earnings from its plantations division, and every RM100 per tonne change in CPO price would lower its pretax profit forecast by RM74m. Expanding its estates IOI Corp raised its total oil palm planted area by 8% in FY6/14 to 174,061ha, mainly through the acquisition of Unico-Desa Plantations for RM1bn. We are positive on the acquisition, as we feel that the purchase price for the estates is fair and see room for FFB yields to improve in the estates as Unico-Desa has replanted 28% of its planted area since Future expansion in the group will come from its plans to enlarge its planted area in Indonesia through new planting activities of 6,000ha per annum over the next three years. Currently, the group has planted 15,320ha of estates in Indonesia. Downstream prospects We expect a more challenging operating environment for its refining business due to the aggressive expansion of its refining capacity in Indonesia. The group's oleochemical division is also expected to face stiffer competition from new capacities and higher biodiesel production in Malaysia and Indonesia. The speciality fats division is expected to be less impacted by overcapacity issues, and the group plans to focus on improving its plants' revenue and efficiency Source: Bloomberg Price Close Relative to FBMKLCI (RHS) Oct-13 Jan-14 Apr-14 Jul week share price range Current Target Financial Summary Jun-13A Jun-14A Jun-15F Jun-16F Jun-17F Revenue (RMm) 13,517 12,664 14,250 15,876 17,553 Operating EBITDA (RMm) 2,451 2,378 1,886 2,084 2,236 Net Profit (RMm) 1,974 3,373 1,219 1,373 1,494 Core EPS (RM) Core EPS Growth (13.8%) (9.6%) (19.8%) 12.6% 8.8% FD Core P/E (x) DPS (RM) Dividend Yield 3.28% 2.49% 2.00% 2.25% 2.45% EV/EBITDA (x) P/FCFE (x) Net Gearing 31.3% 56.7% 47.3% 38.5% 24.7% P/BV (x) ROE 12.8% 15.4% 18.8% 18.9% 18.7% % Change In Core EPS Estimates (13.6%) (7.7%) (4.5%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

34 IOI Corporation Malaysia Profit & Loss (RMm) Jun-14A Jun-15F Jun-16F Jun-17F Total Net Revenues 12,664 14,250 15,876 17,553 Gross Profit 2, ,386 2,259 Operating EBITDA 2,378 1,886 2,084 2,236 Depreciation And Amortisation (227) (202) (210) (218) Operating EBIT 2,152 1,684 1,874 2,018 Financial Income/(Expense) (240) (152) (138) (124) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 2,071 1,668 1,878 2,044 Exceptional Items 1, Pre-tax Profit 3,924 1,668 1,878 2,044 Taxation (534) (434) (488) (532) Exceptional Income - post-tax Profit After Tax 3,390 1,234 1,390 1,513 Minority Interests (17) (15) (17) (18) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit 3,373 1,219 1,373 1,494 Recurring Net Profit 1,520 1,219 1,373 1,494 Fully Diluted Recurring Net Profit 1,520 1,219 1,373 1,494 Balance Sheet (RMm) Jun-14A Jun-15F Jun-16F Jun-17F Total Cash And Equivalents 3,988 4,171 4,333 5,026 Total Debtors 1,102 1,085 1,198 1,327 Inventories 2,155 2,291 2,530 2,801 Total Other Current Assets Total Current Assets 7,386 7,730 8,245 9,337 Fixed Assets 6,410 6,729 7,019 7,302 Total Investments 928 1,022 1,165 1,314 Intangible Assets Total Other Non-Current Assets Total Non-current Assets 7,946 8,313 8,746 9,177 Short-term Debt 2,454 2,621 2,621 2,621 Current Portion of Long-Term Debt Total Creditors Other Current Liabilities ,366 Total Current Liabilities 3,497 3,499 3,942 4,898 Total Long-term Debt 5,069 4,940 4,740 4,540 Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities 5,150 4,984 4,785 4,586 Total Provisions Total Liabilities 9,099 8,882 9,125 9,882 Shareholders' Equity 6,037 6,938 7,625 8,372 Minority Interests Total Equity 6,233 7,161 7,865 8,630 Cash Flow (RMm) Jun-14A Jun-15F Jun-16F Jun-17F EBITDA 2,378 1,886 2,084 2,236 Cash Flow from Invt. & Assoc. Change In Working Capital (151) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow (114) Net Interest (Paid)/Received (272) (152) (138) (124) Tax Paid (451) (434) (488) (532) Cashflow From Operations 1,391 1,309 1,547 2,138 Capex (828) (500) (500) (500) Disposals Of FAs/subsidiaries 2, Acq. Of Subsidiaries/investments (1,066) Other Investing Cashflow (54) Cash Flow From Investing 260 (500) (500) (500) Debt Raised/(repaid) (200) (200) Proceeds From Issue Of Shares Shares Repurchased (205) Dividends Paid (1,063) (610) (687) (747) Preferred Dividends Other Financing Cashflow (1,182) 1, Cash Flow From Financing (2,287) 998 (885) (945) Total Cash Generated (637) 1, Free Cashflow To Equity 1, ,438 Free Cashflow To Firm 1,945 1,042 1,274 1,859 Key Ratios Jun-14A Jun-15F Jun-16F Jun-17F Revenue Growth (6.3%) 12.5% 11.4% 10.6% Operating EBITDA Growth (3.0%) (20.7%) 10.5% 7.3% Operating EBITDA Margin 18.8% 13.2% 13.1% 12.7% Net Cash Per Share (RM) (0.55) (0.53) (0.47) (0.33) BVPS (RM) Gross Interest Cover Effective Tax Rate 13.6% 26.0% 26.0% 26.0% Net Dividend Payout Ratio 50.0% 50.0% 50.0% 50.0% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 11.2% 18.0% 18.8% 19.8% ROCE (%) 12.2% 12.1% 12.8% 13.3% 12-month Forward Rolling FD P/E (x) Key Drivers Jun-14A Jun-15F Jun-16F Jun-17F Planted Estates (ha) 163, , , ,626 Mature Estates (ha) 150, , , ,482 FFB Yield (tonnes/ha) FFB Output Growth (%) 3.0% 6.1% 1.1% 2.6% CPO Price (US$/tonne) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Genting Plantations IOI Corporation Kuala Lumpur Kepong 34

35 Vol m Plantations Malaysia Jaya Tiasa Holdings JT MK / JTIA.KL Current RM2.10 Market Cap Avg Daily Turnover Free Float Target RM2.10 US$620.1m US$0.49m 38.5% Prev. Target RM1.95 RM2,033m RM1.57m m shares Up/Downside 0.0% SAW Xiao Jun T (60) E xiaojun.saw@cimb.com Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Tiong Toh Siong Holdings Sdn Bhd 21.5 Genine Chain Limited 19.0 Asanas Sdn Bhd 9.0 Show Style "View Doc Map" Productivity concerns priced in While the productivity of Jaya Tiasa s estates remains below potential, the steep fall in Jaya Tiasa s share price has placed its EV/ha at a deep discount to the sector. We upgrade the stock to Hold from Reduce as its assets should provide support to the share price. We cut Jaya Tiasa s FY6/15-17 earnings by 4-40% to reflect our new CPO price forecast. But our SOPbased target price is raised to RM2.10 as we roll it forward to end We would turn more positive on Jaya Tiasa if it manages to raise its estates productivity above our expectations. Lower CPO price forecast We are lowering our Malaysian CPO price forecast by 12% to RM2,460 for 2015 and 9% to RM2,650 for 2016 to account for the larger-than-expected edible oil supplies and weaker demand for biodiesel usage in Indonesia. This is negative for Jaya Tiasa as it derived 46% of its FY6/14 earnings from its plantation division. Better performance in FY15 Despite the cut in CPO price forecast, we still project a higher net profit (+4%) in FY15, driven largely by higher FFB production as new mature areas come on stream. Jaya Tiasa s mature areas will grow by 6% yoy in FY15. Likewise, the percentage of prime mature areas (those above 7 years old) will jump from 22.7% at end-fy14 to 37.4% at end-fy15. We project that these will boost its FFB production by 16% in FY15. Conviction Key earnings risks Every 1% drop in FFB yield will lower our FY15 EPS forecast by 4%. We had projected flattish timber earnings in the new financial year. Lower log production, the stronger RM, or weaker timber prices are key earnings risks. Log production hinges on weather conditions in its concession area while others are driven mainly by the economic conditions in Malaysia, India, and Japan. Upgrade to Hold We are upgrading our rating to Hold as its share price has fallen by 22% since we downgraded the stock to Reduce in May 14. However, the underperformance does not alleviate the concern that the productivity of its estates may still be lower than its peers. In FY14, its FFB yield was 13.8 tonnes per ha even though the average age of its mature area was already close to the prime age bracket of 7 years. Nonetheless, its current discounted EV/ha of RM42,000 should lend support to its valuations given that a recent transaction for oil palm estates in Sarawak fetched a price of nearly twice of Jaya Tiasa s current EV/ha Source: Bloomberg Price Close Relative to FBMKLCI (RHS) Oct-13 Jan-14 Apr-14 Jul week share price range Current Target Financial Summary Jun-13A Jun-14A Jun-15F Jun-16F Jun-17F Revenue (RMm) 1,054 1,035 1,324 1,432 1,600 Operating EBITDA (RMm) Net Profit (RMm) Core EPS (RM) Core EPS Growth (87%) 202% 4% 91% 61% FD Core P/E (x) DPS (RM) Dividend Yield 0.48% 0.71% 0.65% 1.24% 1.99% EV/EBITDA (x) P/FCFE (x) NA NA Net Gearing 38.4% 42.1% 32.9% 24.5% 13.1% P/BV (x) ROE 1.4% 3.7% 3.7% 6.7% 10.0% % Change In Core EPS Estimates (35.6%) (39.7%) (3.8%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

36 Jaya Tiasa Holdings Malaysia Profit & Loss (RMm) Jun-14A Jun-15F Jun-16F Jun-17F Total Net Revenues 1,035 1,324 1,432 1,600 Gross Profit Operating EBITDA Depreciation And Amortisation (87) (119) (105) (109) Operating EBIT Financial Income/(Expense) (26) (37) (38) (40) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) Profit Before Tax (pre-ei) Exceptional Items (7) Pre-tax Profit Taxation (27) (25) (45) (71) Exceptional Income - post-tax Profit After Tax Minority Interests (2) (2) (2) (2) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit Balance Sheet (RMm) Jun-14A Jun-15F Jun-16F Jun-17F Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets ,059 Fixed Assets 2,452 2,395 2,372 2,332 Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets 2,613 2,470 2,447 2,407 Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities 1,268 1,294 1,305 1,325 Shareholders' Equity 1,756 1,828 1,942 2,120 Minority Interests Total Equity 1,759 1,845 1,961 2,142 Cash Flow (RMm) Jun-14A Jun-15F Jun-16F Jun-17F EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital 36.4 (15.2) (15.4) (21.5) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received (38.2) (37.4) (37.8) (39.6) Tax Paid (6.5) (20.1) (41.4) (68.7) Cashflow From Operations Capex (271.7) (92.0) (82.8) (69.0) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing (188.7) (92.0) (82.8) (69.0) Debt Raised/(repaid) (65.1) Proceeds From Issue Of Shares Shares Repurchased (0.0) Dividends Paid (20.9) (14.4) (13.3) (25.4) Preferred Dividends Other Financing Cashflow Cash Flow From Financing (63.5) 39.5 (13.3) (25.4) Total Cash Generated (49.2) Free Cashflow To Equity (50.8) Free Cashflow To Firm Key Ratios Jun-14A Jun-15F Jun-16F Jun-17F Revenue Growth (1.9%) 27.9% 8.2% 11.7% Operating EBITDA Growth 81.0% (1.1%) 32.9% 38.9% Operating EBITDA Margin 19.9% 15.4% 18.9% 23.5% Net Cash Per Share (RM) (0.76) (0.62) (0.49) (0.29) BVPS (RM) Gross Interest Cover Effective Tax Rate 31.5% 26.4% 25.7% 25.5% Net Dividend Payout Ratio 22.5% 20.0% 20.0% 20.0% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 4.8% 3.2% 6.5% 10.5% ROCE (%) 4.44% 3.07% 5.75% 8.84% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Key Drivers Jun-14A Jun-15F Jun-16F Jun-17F Planted Estates (ha) 65,681 67,587 67,587 67,587 Mature Estates (ha) 55,438 58,545 62,745 65,681 FFB Yield (tonnes/ha) FFB Output Growth (%) 15.3% 16.1% 25.2% 21.1% CPO Price (US$/tonne) Hap Seng Plantations Jaya Tiasa Holdings Ta Ann 36

37 Vol m Plantations Malaysia Kuala Lumpur Kepong KLK MK / KLKK.KL Current RM21.08 Market Cap Avg Daily Turnover Free Float Target RM22.10 US$6,849m US$4.15m 42.3% Prev. Target RM22.50 RM22,449m RM13.29m 1,068 m shares Up/Downside 4.8% CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Batu Kawan 45.7 Employees Provident Fund 16.1 Lembaga Kemajuan Tanah Persekutuan 4.4 Show Style "View Doc Map" Seeding in new markets In light of stricter rulings on expansion in Indonesia, KL Kepong has ventured into PNG and Liberia in pursuit of growth. There were some hiccups in the early phases of its expansion into these markets, which carry higher risks but offer huge potential for growth. We cut our FY14-16 EPS by 6-13% to reflect our CPO price downgrades. This, coupled with the rollover of our SOP-based valuation to end-2015, leads to a 2% decline in our target price. However, we upgrade the stock to Hold from Reduce, as valuations of the stock have become more reasonable following the 15% decline in its YTD share price. CPO price revisions We scale back our average CPO price forecasts for Malaysia by 10-11% to RM2,390 per tonne for 2014 and RM2,460 per tonne for 2015 to reflect larger-than-expected global edible oil supplies, slower edible oils demand growth, and weaker crude oil prices. For 2016, we have lowered our CPO price forecasts by 5% to RM2,650 per tonne. This is negative for KL Kepong as the group derives 72% of its earnings from its plantations division, and every RM100 per tonne change in CPO price would lower its pretax profit forecasts by RM77m Growth drivers for KLK We expect KL Kepong to deliver higher earnings in FY9/14 due to Conviction better palm product prices and production. Output growth for the group will be supported by new mature areas and young estates averaging 11 years. On top of these, 45% of the group's planted area is young and immature. The group is also adding new refining and oleochemical capacities to drive future growth from this business. We are long-term positive on this as it will help the group achieve better pricing for its palm products. Venturing into new markets KL Kepong ventured into PNG via the acquisition of a 51% stake in Collingwood Plantations (CP) for US$8.67m (RM27.7m) in It also ventured into Liberia through the acquisition of an effective stake of 50% in Liberian Palm Developments and a 20.1% stake in Equatorial Palm Oil for US$20.6m. LPD's subsidiaries hold two 50-year concessions awarded by the Liberian government to rehabilitate and develop 25,547 ha of oil palm plantations, of which 3,750 ha has been planted. The acquisition values the assets on EV/planted ha at US$9, Source: Bloomberg Price Close Relative to FBMKLCI (RHS) Oct-13 Jan-14 Apr-14 Jul week share price range Current Target Financial Summary Sep-12A Sep-13A Sep-14F Sep-15F Sep-16F Revenue (RMm) 10,570 9,147 10,001 10,870 11,925 Operating EBITDA (RMm) 1,859 1,525 1,766 1,913 2,135 Net Profit (RMm) 1, ,040 1,123 1,280 Core EPS (RM) Core EPS Growth (19.0%) (17.1%) 16.7% 7.9% 14.1% FD Core P/E (x) DPS (RM) Dividend Yield 3.08% 2.37% 3.45% 3.45% 3.45% EV/EBITDA (x) P/FCFE (x) Net Gearing 1.60% 7.27% 9.88% 8.30% 5.24% P/BV (x) ROE 15.2% 12.2% 13.6% 14.1% 15.3% % Change In Core EPS Estimates (6.2%) (13.1%) (6.4%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

38 Kuala Lumpur Kepong Malaysia Profit & Loss (RMm) Sep-13A Sep-14F Sep-15F Sep-16F Total Net Revenues 9,147 10,001 10,870 11,925 Gross Profit 2,302 2,523 2,694 2,938 Operating EBITDA 1,525 1,766 1,913 2,135 Depreciation And Amortisation (287) (357) (372) (385) Operating EBIT 1,238 1,409 1,542 1,749 Financial Income/(Expense) (52) (53) (49) (46) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 1,200 1,370 1,507 1,719 Exceptional Items Pre-tax Profit 1,200 1,370 1,507 1,719 Taxation (233) (288) (339) (387) Exceptional Income - post-tax Profit After Tax 967 1,082 1,168 1,332 Minority Interests (49) (42) (45) (52) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit 918 1,040 1,123 1,280 Recurring Net Profit 891 1,040 1,123 1,280 Fully Diluted Recurring Net Profit 891 1,040 1,123 1,280 Balance Sheet (RMm) Sep-13A Sep-14F Sep-15F Sep-16F Total Cash And Equivalents 1,757 2,242 2,340 2,576 Total Debtors 1,217 1,133 1,209 1,339 Inventories 1,062 1,371 1,491 1,635 Total Other Current Assets Total Current Assets 4,173 4,882 5,177 5,686 Fixed Assets 3,729 3,917 4,091 4,251 Total Investments 3,207 3,175 3,144 3,114 Intangible Assets Total Other Non-Current Assets Total Non-current Assets 7,575 7,732 7,875 8,005 Short-term Debt 777 1,500 1,500 1,500 Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities 1,655 2,288 2,336 2,421 Total Long-term Debt 1,558 1,558 1,558 1,558 Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities 1,889 1,817 1,817 1,817 Total Provisions Total Liabilities 3,795 4,356 4,404 4,488 Shareholders' Equity 7,534 7,797 8,142 8,645 Minority Interests Total Equity 7,953 8,258 8,648 9,203 Cash Flow (RMm) Sep-13A Sep-14F Sep-15F Sep-16F EBITDA 1,525 1,766 1,913 2,135 Cash Flow from Invt. & Assoc. Change In Working Capital 140 (385) (149) (189) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow (65) Net Interest (Paid)/Received (57) (53) (49) (46) Tax Paid (298) (288) (339) (387) Cashflow From Operations 1,244 1,040 1,375 1,513 Capex (987) (500) (500) (500) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing (914) (500) (500) (500) Debt Raised/(repaid) (155) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid (716) (777) (777) (777) Preferred Dividends Other Financing Cashflow (49) Cash Flow From Financing (921) (55) (777) (777) Total Cash Generated (591) Free Cashflow To Equity 174 1, ,013 Free Cashflow To Firm ,098 Key Ratios Sep-13A Sep-14F Sep-15F Sep-16F Revenue Growth (13.5%) 9.3% 8.7% 9.7% Operating EBITDA Growth (18.0%) 15.8% 8.4% 11.6% Operating EBITDA Margin 16.7% 17.7% 17.6% 17.9% Net Cash Per Share (RM) (0.54) (0.76) (0.67) (0.45) BVPS (RM) Gross Interest Cover Effective Tax Rate 19.4% 21.0% 22.5% 22.5% Net Dividend Payout Ratio 84.7% 74.7% 69.3% 60.7% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 23.1% 23.8% 24.1% 26.0% ROCE (%) 12.2% 13.0% 13.4% 14.6% 12-month Forward Rolling FD P/E (x) Key Drivers Sep-13A Sep-14F Sep-15F Sep-16F Planted Estates (ha) 197, , , ,230 Mature Estates (ha) 162, , , ,965 FFB Yield (tonnes/ha) FFB Output Growth (%) 10.7% 5.1% 10.8% 6.7% CPO Price (US$/tonne) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Genting Plantations IOI Corporation Kuala Lumpur Kepong 38

39 Vol m Plantations Indonesia London Sumatra LSIP IJ / LSIP.JK Current Rp1,845 Market Cap Avg Daily Turnover Free Float Target Rp1,960 US$1,043m US$3.95m 40.5% Prev. Target Rp1,850 Rp12,588,184m Rp46,798m 6,823 m shares Up/Downside 6.2% CIMB Analyst(s) Maureen NATASHA T (62) E maureen.natasha@cimb.com Laura TASLIM T (62) E laura@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Salim Ivomas Pratama 59.5 Show Style "View Doc Map" 2,700 2,500 2,300 2,100 1,900 1,700 1,500 1, Price Close Relative to JCI (RHS) Oct-13 Jan-14 Apr-14 Jul-14 Source: Bloomberg 52-week share price range 1, ,490 2,450 Current 1,960 Target Double whammy Unexciting CPO and rubber prices coupled with an increase in minimum wages could be a threat to LSIP s earnings performance. The drought in 1Q14 in the northern part of Sumatra may also hamper early-2015 production. We cut our earnings forecasts by 23-29% for FY However, our target price rises as we roll forward valuations and apply a higher CY16 P/E target of 13.4x (prev. 9.5x), a 10% discount to industry leader AALI s target multiple. We upgrade from Reduce to Hold due to recent share price corrections. CPO price downgrade 3Q14 s CPO price correction was stronger than expected due to greater edible oils supply prospects, weaker demand from China and lower crude oil prices. Following a review of the latest fundamentals for edible oils and fats, we lower our average international CPO price forecasts by 5-11% for to US$ per tonne (RM2,390-2,650). For 2015, we expect CPO prices to trend higher due to slower edible oils output growth and restocking activities by customers. We are more bullish about 2016 price prospects as we anticipate stronger biodiesel demand and potential biological tree stress. Production set to recover but offset by weaker CPO price LSIP booked strong production in 1H14 (+24% yoy), still above the company s higher revised production Financial Summary Conviction IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. growth target for 2014 of 10-15% as the company expects the 1Q14 drought to affect production in 4Q14/1Q15. We believe that increased production should lower LSIP s cost of production and boost its earnings. However, this has been offset by a weak CPO price in the later part of Other business suffered too The rubber business posted a weak selling price in 1H14 (-11% yoy) given surplus in the global market due to higher supply from Thailand. The 1H14 seed sales volume plunged 79% yoy to 2.2m seeds, or only 30% of company s full-year target. The decline in sales came on the back of delayed expansion in the industry (land compensation and licence issues). We believe these conditions will persist for the rest of the year as we expect CPO prices to moderate. Fairly valued, lack catalysts Despite LSIP s debt-free balance sheet, the share price has fallen 25% from its peak following the steep CPO price correction. We think LSIP s current valuation is justified in the absence of reasons to re-rate the stock significantly given its unexciting near-term earnings prospects. Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (Rpb) 4,212 4,134 4,629 5,005 5,359 Operating EBITDA (Rpb) 1,530 1,111 1,450 1,654 1,786 Net Profit (Rpb) 1, ,031 1,074 Core EPS (Rp) Core EPS Growth (60.8%) (39.9%) 31.9% 8.6% 4.5% FD Core P/E (x) DPS (Rp) Dividend Yield 3.58% 3.58% 2.47% 3.06% 3.30% EV/EBITDA (x) P/FCFE (x) Net Gearing (28.6%) (21.2%) (20.4%) (22.3%) (28.2%) P/BV (x) ROE 18.3% 10.3% 12.7% 12.6% 12.1% % Change In Core EPS Estimates (24.9%) (28.5%) (22.5%) CIMB/consensus EPS (x) Designed by Eight, Powered by EFA

40 London Sumatra Indonesia Profit & Loss (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues 4,134 4,629 5,005 5,359 Gross Profit 1,253 1,569 1,698 1,778 Operating EBITDA 1,111 1,450 1,654 1,786 Depreciation And Amortisation (293) (348) (456) (540) Operating EBIT 818 1,102 1,198 1,246 Financial Income/(Expense) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 997 1,239 1,337 1,393 Exceptional Items Pre-tax Profit 997 1,239 1,337 1,393 Taxation (228) (284) (306) (319) Exceptional Income - post-tax Profit After Tax ,031 1,074 Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit ,031 1,074 Recurring Net Profit Fully Diluted Recurring Net Profit Balance Sheet (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents 1,401 1,479 1,765 2,417 Total Debtors Inventories Total Other Current Assets Total Current Assets 1,999 2,134 2,472 3,175 Fixed Assets 2,777 2,799 2,808 2,615 Total Investments Intangible Assets Total Other Non-Current Assets 2,851 3,391 3,739 3,935 Total Non-current Assets 5,976 6,539 6,895 6,898 Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities 1,361 1,414 1,463 1,512 Shareholders' Equity 6,614 7,259 7,904 8,562 Minority Interests (0) (0) (0) (0) Total Equity 6,614 7,259 7,904 8,562 Cash Flow (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA 1,111 1,450 1,654 1,786 Cash Flow from Invt. & Assoc Change In Working Capital 245 (4) (3) (3) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received Tax Paid (228) (284) (306) (319) Cashflow From Operations 1,411 1,299 1,484 1,610 Capex (1,094) (911) (813) (543) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow (256) Cash Flow From Investing (1,350) (911) (813) (543) Debt Raised/(repaid) (5) Proceeds From Issue Of Shares Shares Repurchased (3) Dividends Paid (450) (310) (385) (416) Preferred Dividends Other Financing Cashflow Cash Flow From Financing (458) (310) (385) (416) Total Cash Generated (398) Free Cashflow To Equity ,067 Free Cashflow To Firm ,067 Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth (1.8%) 12.0% 8.1% 7.1% Operating EBITDA Growth (27.4%) 30.5% 14.1% 8.0% Operating EBITDA Margin 26.9% 31.3% 33.0% 33.3% Net Cash Per Share (Rp) BVPS (Rp) 969 1,064 1,158 1,255 Gross Interest Cover N/A N/A N/A Effective Tax Rate 22.9% 22.9% 22.9% 22.9% Net Dividend Payout Ratio 58.5% 32.5% 37.4% 38.7% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 17.0% 20.3% 20.0% 19.6% ROCE (%) 12.4% 15.2% 15.2% 14.7% 12-month Forward Rolling FD P/E (x) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Astra Agro Lestari London Sumatra Salim Invomas Pratama Sampoerna Agro Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Planted Estates (ha) 122, , , ,209 Mature Estates (ha) 107, , , ,875 FFB Yield (tonnes/ha) FFB Output Growth (%) -3.1% 13.8% 3.4% 0.7% CPO Price (US$/tonne) N/A N/A N/A N/A 40

41 Vol m Conglomerate Malaysia Oriental Holdings ORH MK / OTLS.KL Current RM7.39 Market Cap Avg Daily Turnover Free Float Target RM7.38 US$1,399m US$0.09m 43.5% Prev. Target RM7.60 RM4,584m RM0.28m m shares Up/Downside -0.1% SAW Xiao Jun T (60) E xiaojun.saw@cimb.com CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Boon Siew Sdn Bhd 54.8 Employees Provident Fund Board 9.9 Aberdeen Asset Management 11.0 Show Style "View Doc Map" Conviction Lacking re-rating catalysts The prospect of lower CPO prices removes palm oil earnings as a re-rating catalyst for Oriental. In our view, the stock will continue to trade below the fair value of its assets in the near future due to the unexciting earnings growth outlook. We cut FY14-16 EPS by 2-13% to incorporate our lower CPO price forecasts. This leads to a lower end-fy15 target price of RM7.38, based on its 5-year historical average P/BV of 0.9x. Although Oriental Holdings (Oriental) appears undervalued, we maintain our Hold call as the stock lacks visible re-rating catalysts. Lower CPO price forecast We lower our Malaysian CPO price forecasts by 11% to RM2,390 for 2014 and 12% to RM2,460 for 2015 to account for the bumper edible oil supplies and weaker demand for biodiesel usage in Indonesia. This leads to a 2-13% drop in our EPS forecasts for FY Despite the cut, we still project 14% EPS growth this year, driven by improvement in auto performance. Underutilised balance sheet At end-jun 2014, Oriental had net cash of RM2.8bn on its balance sheet. This represented half of its net assets and 60% of its market cap. Low interest rates, weak plantations earnings and assets in other divisions that are idle or unprofitable have resulted in low return on equity (ROE). We project that Oriental will post ROE of % in FY This is barely above the 3.8% yield of 10-year Malaysian government securities (MGS). The company s dividend payout ratio of around 20% translates into long-term EPS growth rate of only %. Undervalued but missing re-rating catalysts We expect the stock to continue trading below the fair value of its assets, given its low ROE and unexciting earning growth prospects. We believe that a major corporate exercise or significant acquisition is needed to provide re-rating catalysts in the near term. Our checks revealed that the company is changing the expansion strategy for its Indonesian plantations business from greenfield expansion to brownfield acquisition because brownfield acquisitions face fewer social challenges and regulatory hurdles. We understand that it is evaluating several brownfield plantations acquisitions. A prolonged period of weak CPO prices may provide Oriental with opportunities to scoop up distressed plantations assets. For now, we maintain our Hold call due to the lack of visible re-rating catalysts Price Close Relative to FBMKLCI (RHS) Oct-13 Jan-14 Apr-14 Jul-14 Source: Bloomberg 52-week share price range Current 7.38 Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (RMm) 2,807 2,754 3,118 3,168 3,249 Operating EBITDA (RMm) Net Profit (RMm) Core EPS (RM) Core EPS Growth (25.7%) (7.6%) 13.7% 2.5% 6.1% FD Core P/E (x) DPS (RM) Dividend Yield 1.08% 0.95% 0.95% 0.95% 0.95% EV/EBITDA (x) P/FCFE (x) NA 149 1, Net Gearing (40.3%) (41.2%) (38.9%) (38.5%) (38.5%) P/BV (x) ROE 4.46% 3.97% 4.36% 4.32% 4.42% % Change In Core EPS Estimates (2.0%) (11.2%) (13.2%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

42 Oriental Holdings Malaysia Profit & Loss (RMm) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues 2,754 3,118 3,168 3,249 Gross Profit Operating EBITDA Depreciation And Amortisation (101) (101) (101) (101) Operating EBIT Financial Income/(Expense) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) Profit Before Tax (pre-ei) Exceptional Items Pre-tax Profit Taxation (65) (86) (89) (102) Exceptional Income - post-tax Profit After Tax Minority Interests (14) (56) (59) (73) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit Balance Sheet (RMm) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents 2,762 2,722 2,789 2,884 Total Debtors Inventories Total Other Current Assets Total Current Assets 3,404 3,440 3,518 3,627 Fixed Assets 1,630 1,779 1,857 1,936 Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets 2,951 3,180 3,339 3,497 Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity 4,747 4,915 5,087 5,273 Minority Interests Total Equity 5,493 5,716 5,947 6,206 Cash Flow (RMm) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital 84.5 (34.6) (4.6) (5.4) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow (69.2) Net Interest (Paid)/Received Tax Paid (63.4) (85.6) (89.2) (101.8) Cashflow From Operations Capex (197.1) (250.0) (180.0) (180.0) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing (122.9) (250.0) (180.0) (180.0) Debt Raised/(repaid) (105.9) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid (61.5) (43.4) (43.4) (43.4) Preferred Dividends Other Financing Cashflow Cash Flow From Financing 47.8 (43.4) (43.4) (43.4) Total Cash Generated (40.0) Free Cashflow To Equity Free Cashflow To Firm Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth (1.9%) 13.2% 1.6% 2.6% Operating EBITDA Growth (26.3%) 26.0% 1.9% 11.6% Operating EBITDA Margin 9.3% 10.3% 10.4% 11.3% Net Cash Per Share (RM) BVPS (RM) Gross Interest Cover Effective Tax Rate 24.6% 24.3% 24.5% 25.2% Net Dividend Payout Ratio 26.8% 20.6% 20.1% 19.0% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 5.47% 7.80% 7.53% 8.57% ROCE (%) 3.63% 4.58% 4.59% 5.03% 12-month Forward Rolling FD P/E (x) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 DRB-Hicom Oriental Holdings Sime Darby Bhd Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Rev. growth (%, main biz.) 8.2% 23.5% 2.5% 2.5% EBITDA mgns (%, main biz.) N/A N/A N/A N/A Rev. as % of total (main biz.) 50.7% 55.3% 55.7% 55.7% EBITDA as % of total (main biz.) N/A N/A N/A N/A Rev. growth (%, 2ndary biz.) -15.5% 0.0% 0.0% 0.0% EBITDA mgns (%, 2ndary biz.) 10.5% 10.5% 10.5% 11.4% Rev. as % of total (2ndary biz.) N/A N/A N/A N/A EBITDA as % of total (2ndary biz.) N/A N/A N/A N/A Rev. growth (%, tertiary biz.) N/A N/A N/A N/A EBITDA mgns (%, tertiary biz.) N/A N/A N/A N/A Rev.as % of total (tertiary biz.) N/A N/A N/A N/A EBITDA as % of total (tertiary biz.) N/A N/A N/A N/A 42

43 Vol m Plantations Indonesia Salim Invomas Pratama SIMP IJ / SIMP.JK Current Rp745.0 Market Cap Avg Daily Turnover Free Float Target Rp910.0 US$976.3m US$0.48m 20.0% Prev. Target Rp1,180 Rp11,783,151m Rp5,658m 15,816 m shares Up/Downside 22.1% CIMB Analyst(s) Ivy NG Lee Fang, CFA T (60) E ivy.ng@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Indofood Agri Resources 72.0 Indofood Sukses Makmur 6.7 Show Style "View Doc Map" Conviction Cheap plantation assets We expect SIMP s earnings to be negatively impacted by the lower CPO prices. However, we are sticking to our Add rating on this stock as it is trading at only 0.9x P/BV and the implied market valuation for its planted estates works out to be only US$7k per ha, below market price. We lower our FY14-16 EPS forecasts by 8-21% to reflect our weaker CPO price assumptions. The earnings cuts plus the downgrade in the group's target P/BV to 1x from 1.3x has led us to reduce our target price for the stock to Rp910. We see potential for the group to improve the FFB yields of its estates and like its sugar assets. These, coupled with its attractive valuations, have led us to retain our Add rating. CPO price downgrades We lower our average CPO price forecasts by 10% to US$840 per tonne for 2014 and 11% to US$850 per tonne for 2015 to reflect larger-than-expected global edible oil supplies, slower edible oils demand growth, and weaker crude oil prices. For 2016, we cut our CPO price forecasts by 5% to US$910 per tonne. This is negative for SIMP, which derives 97% of its earnings from its plantation business. Recovering FFB yields The group posted a 23% yoy rise in FFB output in 2Q14, suggesting that social issues at its estates have continued to subside. This, together with improved weather and absence of biological tree stress, have raised yields in its estates in south Sumatera and Kalimantan. Overall, the group's 1H14 FFB production growth of 18% from its nucleus estates was above expectations. We are positive on this as it will help the group rein in the production costs at its estates which have been on the rise. Better earnings from its cooking oil division We expect the lower CPO price to be positive for its edible oils and fats division as there is a lagged effect of passing on the lower raw material costs to consumers. This will help to partially buffer the impact of lower plantation earnings. The edible oils and fats division make up around 3% of the group's earnings. Cheap valuations The current market implied EV/ha valuation for its planted estates work out to be only US$7k, which is at or below current replacement costs for estates and the recent market transaction for estates in Indonesia of US$9k-12k per ha. 1, Source: Bloomberg Price Close Relative to JCI (RHS) Oct-13 Jan-14 Apr-14 Jul week share price range ,050 Current Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (Rpb) 13,845 13,280 14,917 15,923 17,817 Operating EBITDA (Rpb) 3,303 2,790 3,477 2,924 3,413 Net Profit (Rpb) 1, ,006 Core EPS (Rp) Core EPS Growth (31.2%) (37.4%) 10.1% (11.0%) 31.6% FD Core P/E (x) DPS (Rp) Dividend Yield 2.95% 1.32% 1.09% 0.97% 1.28% EV/EBITDA (x) P/FCFE (x) NA NA NA NA Net Gearing 20.7% 35.8% 46.0% 49.4% 54.0% P/BV (x) ROE 9.47% 5.72% 6.12% 5.19% 6.50% % Change In Core EPS Estimates (9.6%) (20.5%) (8.1%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

44 Salim Invomas Pratama Indonesia Profit & Loss (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues 13,280 14,917 15,923 17,817 Gross Profit 2,947 3,310 3,533 3,954 Operating EBITDA 2,790 3,477 2,924 3,413 Depreciation And Amortisation (1,019) (1,036) (610) (610) Operating EBIT 1,771 2,441 2,314 2,803 Financial Income/(Expense) (766) (797) (842) (890) Pretax Income/(Loss) from Assoc. (70) (75) (75) (75) Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 934 1,569 1,396 1,838 Exceptional Items Pre-tax Profit 934 1,569 1,396 1,838 Taxation (299) (424) (377) (496) Exceptional Income - post-tax Profit After Tax 635 1,145 1,019 1,342 Minority Interests (111) (286) (255) (335) Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit ,006 Recurring Net Profit ,006 Fully Diluted Recurring Net Profit ,006 Balance Sheet (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents 2,113 1, Total Debtors 1,158 1,301 1,388 1,554 Inventories 1,568 1,762 1,881 2,104 Total Other Current Assets Total Current Assets 5,353 4,638 4,860 4,862 Fixed Assets 9,074 11,038 12,428 13,818 Total Investments 7,590 8,527 9,101 10,184 Intangible Assets 2,338 2,338 2,338 2,338 Total Other Non-Current Assets 3,710 3,635 3,560 3,485 Total Non-current Assets 22,712 25,537 27,427 29,824 Short-term Debt 4,490 5,490 6,490 7,490 Current Portion of Long-Term Debt Total Creditors 1,142 1,134 1,230 1,317 Other Current Liabilities Total Current Liabilities 6,461 7,453 8,549 9,636 Total Long-term Debt 3,396 3,396 3,396 3,396 Hybrid Debt - Debt Component Total Other Non-Current Liabilities 1,591 1,692 1,803 1,925 Total Non-current Liabilities 4,988 5,088 5,199 5,322 Total Provisions Total Liabilities 11,957 13,051 14,257 15,466 Shareholders' Equity 13,668 14,398 15,048 15,904 Minority Interests 2,440 2,726 2,981 3,316 Total Equity 16,108 17,124 18,029 19,220 Cash Flow (Rpb) Dec-13A Dec-14F Dec-15F Dec-16F EBITDA 2,790 3,477 2,924 3,413 Cash Flow from Invt. & Assoc. Change In Working Capital 160 (404) (154) (373) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received (376) (797) (842) (890) Tax Paid (706) (424) (377) (496) Cashflow From Operations 2,139 1,852 1,551 1,654 Capex (3,312) (3,936) (2,575) (3,083) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow (681) Cash Flow From Investing (3,978) (3,936) (2,575) (3,083) Debt Raised/(repaid) 499 1,101 1,111 1,122 Proceeds From Issue Of Shares Shares Repurchased Dividends Paid (155) (129) (115) (151) Preferred Dividends Other Financing Cashflow Cash Flow From Financing Total Cash Generated (1,495) (1,112) (28) (458) Free Cashflow To Equity (1,340) (983) 87 (307) Free Cashflow To Firm (1,365) (1,181) (76) (433) Key Ratios Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth (4.1%) 12.3% 6.7% 11.9% Operating EBITDA Growth (15.5%) 24.6% (15.9%) 16.7% Operating EBITDA Margin 21.0% 23.3% 18.4% 19.2% Net Cash Per Share (Rp) (365.0) (498.5) (563.5) (655.7) BVPS (Rp) ,006 Gross Interest Cover Effective Tax Rate 32.0% 27.0% 27.0% 27.0% Net Dividend Payout Ratio 29.6% 15.0% 15.0% 15.0% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 12.4% 14.9% 12.4% 13.9% ROCE (%) 7.8% 10.0% 8.8% 9.9% 12-month Forward Rolling FD P/E (x) Key Drivers Dec-13A Dec-14F Dec-15F Dec-16F Planted Estates (ha) 239, , , ,921 Mature Estates (ha) 177, , , ,956 FFB Yield (tonnes/ha) FFB Output Growth (%) -2.6% 14.7% 8.0% 5.5% CPO Price (US$/tonne) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Astra Agro Lestari London Sumatra Salim Invomas Pratama 44

45 Vol m Plantations Indonesia Sampoerna Agro SGRO IJ / SGRO.JK Current Rp1,930 Market Cap Avg Daily Turnover Free Float Target Rp2,050 US$302.2m US$0.11m 24.4% Prev. Target Rp2,150 Rp3,647,700m Rp1,340m 1,890 m shares Up/Downside 6.2% CIMB Analyst(s) Maureen NATASHA T (62) E maureen.natasha@cimb.com Laura TASLIM T (62) E laura@cimb.com Share price info Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Venture Max Resources 71.8 PT Nitiagro Lestari 3.8 Public 24.4 Show Style "View Doc Map" Production volatility Despite SGRO s production recovery this year, we believe the large contribution from plasma estates will keep its EBITDA margin below its peers and increase production volatility. We also believe SGRO s share price already reflects the positive surprises from production. We cut our earnings forecasts by 11-27% for FY This results in a lower target price of Rp2,050, now based on 11x CY16 P/E, a 25% discount to industry leader AALI s target multiple. However, we upgrade our rating to Hold from Reduce due to the recent share price corrections. CPO price downgrade 3Q14 s CPO price correction was stronger than expected due to greater edible oils supply prospects, weaker demand from China and lower crude oil prices. Following a review of the latest fundamentals for edible oils and fats, we lower our average international CPO price forecasts by 5-11% for to US$ per tonne (RM2,390-2,650). For 2015, we expect CPO prices to trend higher due to slower edible oils output growth and restocking activities by customers. We are more bullish about 2016 price prospects as we anticipate stronger biodiesel demand and potential biological tree stress. High plasma contribution SGRO posted strong CPO production growth in 1H14 of 43% yoy after a sharp decline last year. The company targets 20% growth for this year. Conviction Despite its declining plasma portion from year to year, SGRO still has the highest plasma portion among its peers, which has resulted in a relatively lower margin. This is exacerbated by increasing labour costs while production volatility may lead to downside risk for earnings. Seed business suffered too The 1H14 seed sales volume plunged 30% yoy to 3.9m seeds. As such, seed revenues dropped 21% yoy. The decline in sales came on the back of delayed expansion in the industry (land compensation and licence issues). We believe these conditions will persist for the rest of the year as we expect CPO prices to moderate. Fully valued, lack catalysts SGRO exhibits the lowest daily trading value among all Indonesialisted planters under our coverage. The stock has fallen 21% from its peak following the steep CPO price correction. We believe SGRO s low daily trading value may not provide sufficient liquidity to re-rate its trading multiple further. SGRO trades at US$5,560/ha, slightly higher than the replacement cost of US$5.5k/ha, which may be its support level. 2,400 2,200 2,000 1,800 1, Source: Bloomberg Price Close Relative to JCI (RHS) Oct-13 Jan-14 Apr-14 Jul week share price range 1, ,760 2,445 Current 2,050 Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (Rpb) 2,986 2,561 3,148 3,369 3,777 Operating EBITDA (Rpb) Net Profit (Rpb) Core EPS (Rp) Core EPS Growth (38%) (70%) 228% 1% 14% FD Core P/E (x) DPS (Rp) Dividend Yield 3.17% 1.63% 0.59% 1.66% 1.66% EV/EBITDA (x) P/FCFE (x) NA Net Gearing 26.8% 42.0% 46.3% 45.5% 44.9% P/BV (x) ROE 12.5% 3.6% 11.0% 10.1% 10.6% % Change In Core EPS Estimates (10.8%) (26.7%) (20.1%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA