Regional Industry Focus Plantation Companies Drier than normal weather may trim ... 28,484US$ 22.7...

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ed-TH / sa- JC

Bottom fish in 2015

CY15F CPO ASP of RM2,300 unchanged; expect softer

prices in 1H15 followed by a recovery in 2H15

Keep tabs on soybean oil supply, refining margins and biodiesel demand for downside risks

Upside risks: El Nino, recovery in crude oil price, more

regulations restricting expansions

Top BUYs: BWPT, GENP, TSH and BAL Outlook A flattish year ahead. Subject to changes in the Ringgit and our crude oil price assumptions, we expect palm oil prices to average RM2,300 in 2015, which is relatively weaker than 2014 average. Following a potential near-term correction between Jan15 and Mar15, palm oil prices should marginally recover in subsequent quarters, with more meaningful improvement in 4Q15, backed by inventory drawdown on both supply constraints and better offtakes. Three key issues : (i) weaker soybean oil prices in 1Q15 from: (a) record South American soybean harvests, (b) de-stocking in Argentina, and (c) weaker crush margins in China on demand switch to Dried Distillers Grains (DDGS); (ii) weak outlook for downstream margins throughout the year; and (iii) usage of palm oil for energy may disappoint. More positive longer term. We view any weakness in palm oil prices as an opportunity to bottom fish in 1Q15. We expect the dry spells in 1Q14 and 3Q14 to negatively impact FFB yields in 2H15. Combined with improving demand prospects, we expect inventory drawdown to lower Malaysia’s palm oil stockpile to 1.84m MT by end 2015. Palm oil prices and plantation counters should react positively. Risks Weather and crude oil price volatility. Drier than normal weather may trim yields faster than expected, while a recovery in crude oil prices would likewise revive demand for biodiesel and some oleochemical products. Regulatory uncertainties. India may cut oilseed import duties from 30% to 5-10% to encourage rapeseed and sunseed imports and reduce dependence on refined oil imports, which should offset the sharp decline in India’s oilseeds output. We still await government policies on maximum land concessions and foreign ownership in Indonesia Valuations & Stock Picks We recommend investors to accumulate upstream planters on any near-term weakness. Our picks are BWPT (initiation report is issued separately today), GENP, TSH and BAL

JCI : 5,160.43 KLCI : 1,732.99 STI : 3,324.13 Analyst Ben SANTOSO +65 6682 3707 [email protected] STOCKS

Source: DBS Bank, DBS Vickers, AllianceDBS; Bloomberg Finance L.P.

*Theoretical ex rights price using 12 Dec14 closing price

CPO, soybean, soybean oil price forecasts

Source: DBS Bank estimates

DBS Group Research . Equity 15 Dec 2014

Regional Industry Focus

Plantation Companies

Refer to important disclosures at the end of this report

Price Mkt Cap Target Price Performance (%)

Rp US$m Rp 3 mth 12 mth Rating

Rp Astra Agro Lestari 23,675 2,995 22,400 1.9 (4.4) HOLD London Sumatra 1,945 1,066 1,760 12.9 (1.3) HOLD Sampoerna Agro 2,130 323 2,020 1.4 2.4 HOLD BW Plantation 400* 1,018 545 (57.8) (70.7) BUY RM Felda Global Ventures 2.60 2,714 3.30 (25.7) (40.4) HOLD Genting Plantations 9.71 2,140 12.35 (2.3) (13.7) BUY IJM Plantation 3.30 832 3.60 (9.8) (5.7) HOLD IOI Corporation 4.58 8,337 3.95 (5.2) 11.0 FV KL Kepong 21.32 6,498 20.45 (4.3) (12.5) HOLD Sime Darby 9.20 15,966 9.10 1.6 (2.5) HOLD TSH Resources 2.20 854 2.55 3.1 10.4 BUY S$ Bumitama Agri 1.03 1,372 1.19 (8.0) 4.0 BUY First Resources 1.84 2,220 2.09 (9.3) (16.0) HOLD Indofood Agri R. 0.71 761 0.98 (14.8) (20.0) BUY Golden Agri 0.45 4,400 0.46 (8.9) (17.1) NR Wilmar Int’l 3.24 15,782 3.45 (0.3) (6.2) HOLD

2013 2014F 2015F 2016F 2017F 2018FCPO price (RM/MT, FOB Malaysia) 2,377 2,380 2,300 2,530 2,480 2,550CPO price (US$/MT, CIF Rotterdam) 857 825 815 905 890 915

Soybean price (US$/MT, FOB Chicago) 520 460 408 384 388 405Soybean oil price (US$/MT, FOB Chicago) 999 860 846 864 850 874



Peer comparison

Source: Companies, Bloomberg Finance LP, DBS Bank, DBS Vickers, AllianceDBS



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(ha .) (ha .) (ha .) (ha .) (ha .) 12/12/14 (m) (own) (own) 14F 15F 14F 15F 14F 15F 14F 15F % %

Indone s ia

Astra Agro L. n/a 191,085 194,389 232,622 242,622 23,675Rp 2,995US$ 12,858US$ 16,049US$ 12.5 12.7 2.2 3.6 65.6 -1.6 5.7 NC 6.1 10.8 H 22,400Rp DCF

London Sum.* 215,917 76,531 79,661 93,845 94,845 1,945Rp 1,066US$ 9,996US$ 11,902US$ 12.7 13.7 2.3 3.2 35.8 -7.4 NC NC 4.9 6.4 H 1,760Rp DCF

Sampoerna A. 246,873 56,022 57,439 74,712 78,755 2,130Rp 323US$ 5,316US$ 7,289US$ 11.6 10.8 0.8 2.2 192.2 7.3 36.5 33.9 10.0 11.9 H 2,020Rp DCF

BW Plantation 419,006 86,497 99,561 134,013 146,013 402Rp 1,018US$ 9,828US$ 14,413US$ 50.8 16.2 0.2 1.0 36.3 212.9 45.6 42.3 19.8 47.7 B 545Rp DCF

Simple a vg 5,402US$ 9 ,500US$ 12,413US$ 21.9 13.4

Ma la ys ia

Felda Global V. 355,864 259,425 258,853 323,587 323,587 2.60RM 2,714US$ 10,868US$ 13,586US$ 24.5 16.0 2.0 3.1 -63.3 53.2 3.3 NC 0.4 19.0 H 3.30RM DCF

Genting Plant. 150,912 87,752 92,457 120,441 125,441 9.71RM 2,140US$ 20,994US$ 28,484US$ 22.7 22.0 1.0 1.0 42.5 3.3 NC NC 10.1 12.4 B 12.35RM SOP

IJM Plant. 78,484 34,102 44,340 55,389 58,389 3.30RM 832US$ 14,298US$ 18,829US$ 20.9 17.4 1.7 2.6 -25.9 56.6 19.3 27.9 16.7 20.7 H 3.60RM DCF

IOI Corp** 220,593 151,947 151,542 176,964 180,639 4.58RM 8,337US$ 14,411US$ 17,178US$ 12.6 21.4 4.7 2.1 55.7 -62.7 56.7 59.9 1.7 (0.2) FV 3.95RM DCF

KL Kepong 245,905 168,828 176,529 193,131 192,958 21.32RM 6,498US$ 13,086US$ 14,304US$ 23.4 23.4 2.6 2.4 8.1 -8.1 19.7 16.4 3.5 5.1 H 20.45RM DCF

Sime Darby 647,373 461,991 462,695 525,290 525,325 9.20RM 15,966US$ 10,763US$ 12,220US$ 18.5 18.3 3.0 2.4 -10.2 -20.4 23.1 22.0 3.3 0.8 H 9.10RM SOP

TSH Res. 82,841 27,898 30,398 39,763 43,763 2.20RM 854US$ 14,445US$ 20,795US$ 21.6 20.1 1.2 1.2 -2.8 7.5 85.1 83.7 14.0 12.5 B 2.55RM DCF

Simple a vg 37,340US$ 14,124US$ 17,914US$ 20.6 19.8

Singa pore

Bumitama A. 191,561 77,280 91,834 119,573 123,573 1.03S$ 1,372US$ 13,955US$ 18,778US$ 14.1 12.8 0.8 1.1 40.3 9.6 46.9 35.3 18.4 16.8 B 1.19S$ DCF

First Resources 312,488 115,299 120,778 162,727 172,727 1.84S$ 2,220US$ 14,001US$ 20,023US$ 13.0 11.3 2.5 2.1 -28.5 14.7 12.5 NC 8.8 17.5 H 2.09S$ DCF

Golden Agri R. 558,000 350,796 362,132 380,102 389,102 0.45S$ 4,400US$ 16,789US$ 18,040US$ 20.7 13.3 1.4 1.7 -35.7 55.8 25.5 24.7 5.2 35.7 NR 0.46S$ DCF

Indofood Agri* 541,224 190,738 202,853 249,172 260,406 0.71S$ 761US$ 5,566US$ 7,145US$ 8.0 8.2 0.0 0.0 114.9 -2.6 19.5 16.8 7.6 14.7 B 0.98S$ DCF

Wilmar Int'l 573,401 233,162 235,923 246,048 251,048 3.24S$ 15,782US$ 3,540US$ 3,767US$ 14.2 13.9 1.4 1.4 -16.0 1.9 77.5 74.7 3.7 2.6 H 3.45S$ DCF

Simple a vg 24,536US$ 12,578US$ 15,996US$ 14.0 11.9* Including rubber and other crops** Excluding effective stake in associates land bank

FY Div. yie ld,

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Analyst

Ben SANTOSO +65 6682 3707 [email protected]

Table of contents Peer comparison 2 Outlook for 2015 4

Expect lower FFB yields 4 Lower crude oil price to boost economic growth 4 Price recovery without biodiesel 4 Shifting output 5 1H15 price weakness; 2H15 price recovery 6 More FX losses on the horizon 6 Key risks to our call 7

Strategy and stock picks 8 Malaysian planters remain expensive 8 Focus on upstream 8 Weak earnings may extend through 2Q15 9 A hedge against weak currencies? 9 Trends to watch in 2015 9

STOCK PROFILE 11 BW Plantation 12

Disclaimer 14



Outlook for 2015

Key drivers

A. Expect lower FFB yields. We expect palm oil supply to be slightly in excess in 1Q15 due to the shift in 2014 peak harvesting season in Kalimantan. This will be accompanied by record soybean harvests in South America (Brazil, Argentina, Paraguay), in addition to a bumper crop in the US in 4Q14. However palm oil yields may

stagnate/decline y-o-y in 2H15 due to the sporadic dry spells in 1Q14 and 3Q14. In this report, we have lowered Malaysia’s 2015F palm oil output to 20.5m MT from 20.9m MT on expectations of a lagged effect of 2014 dryness. Weather anomalies – such as the long-awaited El Nino – would pose further downside risk to our base case scenario.

B. Lower crude oil prices boosting economic growth. Our

economists believe that the 40% drop in average Brent

price (from US$107/bbl in 9M14 to US$65/bbl currently) could boost ICI’s (India, China, Indonesia) 2015F GDP growth by an additional 20 bps, 28 bps and 20 bps, respectively (ceteris paribus). India, China and Indonesia

account for 13%, 10% and 15% of global palm oil demand, respectively. This accompanying pick-up in demand would be at risk if the weaker Eurozone economy (c.12% of global palm oil demand) offsets demand growth in other regions.

C. Price recovery without biodiesel. Weak crude oil prices

are likely to eliminate discretionary biodiesel demand in 2015 (ex-mandates). This, a strong USD, and record

soybean harvests should keep prices of palm oil and

its substitutes relatively low in 1H15. In our view, upside catalysts should be more visible in 2H15, led by a deceleration in palm oil supply growth (due to lower FFB yields) and pick-up in demand in the economies in India, China and Indonesia. Consequently, the discount of palm oil price to soybean oil should continue to narrow. The risk to this outlook is if soybean oil prices continue to remain depressed for the remainder of 2015.

Palm oil hectarage and output

Sources: Oil World, MPOB, Ministry of Agriculture of Indonesia, DBS Bank estimates

Oi l palm planted area ('000 hectares)2011 2012 2013 2014F 2015F 2016F 2017F 2018F

Mature 4,281.8 4,352.9 4,526.1 4,683.2 4,780.9 4,881.1 4,992.1 5,060.2 Immature 718.3 724.1 703.7 645.9 612.8 554.4 470.8 420.4 Implied new planting 232.2 165.7 242.6 192.6 162.5 143.5 132.5 126.9Malaysia 5,000.1 5,076.9 5,229.7 5,329.1 5,393.6 5,435.6 5,462.9 5,480.6

Mature 6,550.8 6,585.9 7,037.5 7,606.3 7,948.8 8,056.5 8,097.8 8,121.1 Immature 2,442.0 2,488.7 2,159.8 1,704.6 1,467.0 1,456.4 1,505.0 1,564.7 Implied new planting 698.4 190.6 231.4 200.5 200.5 198.4 263.5 260.2Indonesia 8,992.8 9,074.6 9,197.3 9,310.8 9,415.8 9,512.9 9,602.7 9,685.8

Mature 10,832.6 10,938.8 11,563.6 12,289.4 12,729.7 12,937.6 13,089.9 13,181.3 Immature 3,160.3 3,212.8 2,863.4 2,350.5 2,079.8 2,010.9 1,975.7 1,985.1 Implied new planting 930.6 356.3 474.0 393.1 363.0 341.9 395.9 387.2Total 13,992.9 14,151.6 14,427.1 14,639.9 14,809.4 14,948.5 15,065.6 15,166.4 % growth 5.7 1.1 1.9 1.5 1.2 0.9 0.8 0.7

CPO production (m MT)2011 2012 2013 2014F 2015F 2016F 2017F 2018F

Malaysia 18.912 18.785 19.216 20.000 20.219 20.939 21.818 22.716 vol. growth 1.9 -0.1 0.4 0.8 0.2 0.7 0.9 0.9 % growth 11.3 -0.7 2.3 4.1 1.1 3.6 4.2 4.1Indonesia 24.300 26.900 28.400 30.419 32.060 33.434 34.677 35.663 vol. growth 2.2 2.6 1.5 2.0 1.6 1.4 1.2 1.0 % growth 10.0 10.7 5.6 7.1 5.4 4.3 3.7 2.8Others 7.580 8.198 8.595 8.908 9.323 9.956 10.617 11.253 vol. growth 0.8 0.6 0.4 0.3 0.4 0.6 0.7 0.6 % growth 11.1 8.1 4.8 3.6 4.7 6.8 6.6 6.0Total 50.792 53.883 56.211 59.326 61.602 64.330 67.111 69.632 vol. growth 4.9 3.1 2.3 3.1 2.3 2.7 2.8 2.5 % growth 10.6 6.1 4.3 5.5 3.8 4.4 4.3 3.8



Shifting output

For the remainder of this year and 4Q14, we expect Sumatra, Sabah and Peninsular Malaysia to have normal seasonality while Kalimantan is likely to see some spill-over volume from a shift in the 2014 peak harvesting season (i.e. from 3Q14 to 4Q14). Combined, the peak output should have occurred in 3Q14. We expect Malaysia’s Dec14 output to come in at 1.697m MT (+3% y-o-y). Globally, 2014 palm oil supply should reach 59.3m MT (+6% y-o-y), with Indonesia contributing 30.4m MT (51% share) and Malaysia with 20m MT (34%). In view of sporadic dryness this year, we lowered our expectations for palm oil production in 2015 to 61.6m MT (from 63.1m MT), representing a slower 4.0% y-o-y growth (from 5.6%). This cut is primarily on account of lower expected palm oil output in Malaysia (reduced to 20.2m MT from 20.9m

MT). We have kept 2015 palm oil output in Indonesia at 32.1m MT, based on flat FFB yields. In this report we forecast Malaysian palm oil inventory to gradually decline from 2.22m MT at end Jan15 to 1.84m MT at end Jun15 before rising back to 2.15m MT in Sep14. Lower expected FFB yield in 2H15 should gradually reduce inventory to 1.84m MT by end Dec15. Relative to consumption, our forecast inventory levels in Malaysia translate to stock/usage ratio of 11% at the end of Jan15. This will decline to 9.1% in Jun15 but rise towards 10.7% in Sep15 on peak harvest. End 2015 stock/usage ratio is forecast at 9.1% - significantly lower than our forecast of 11.4% at end-2014.

Malaysia palm oil output forecast

Source: MPOB, DBS Bank estimates

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Malaysia palm oil stockpile forecast

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1H15 price weakness; 2H15 price recovery

We continue to expect weaker palm oil prices in 1Q15 followed by gradual recovery for the remainder of 2015. Our view is based on the following assumptions. With dry weather seemingly no longer an issue in major South American soybean growing areas, we expect soybean oil output to remain seasonally strong in 1Q15, backed by record South American harvest. We understand 4Q14 soybean crush margins in China have eased on softer soybean meal prices (following reports that import restrictions on US DDGS – Dried distillers Grains with Soluble –may be lifted). However, we continue to expect crushing activities elsewhere to remain robust. With biodiesel margins in negative territory currently, mandated volumes in Indonesia and Malaysia (due to larger implicit subsidies) may not be achieved. We understand biodiesel producers in Indonesia have asked the government to amend and peg the biodiesel pricing formula to CPO cost of production – instead of MOPS pricing – in view of the recent drop in crude oil prices. We also see limitations in implementing blending rates higher than 7%, due to automakers’ warranty issues.

We will review our CPO price forecasts in 1Q15 to account for recent movements in currencies, crude oil prices, as well as to impute actual average CPO price in 2014. More FX losses on the horizon

While our in-house expectations are for stronger regional currencies over the long-term, these currencies may continue to depreciate in the near-term. Under a scenario where Ringgit and Rupiah weaken further next year, we see higher borrowing costs, in addition to translation FX losses (depending of each company’s US Dollar exposure). Within our coverage, IOI Corporation, Golden Agri and Sime Darby are prone to higher leverage ratios in the event of significant depreciation in the local currency. Key risks to our call Apart from El Nino and US Dollar strength, we believe the following may result in changes to our calls: 1. Change in export/import tax structure. It was recently

reported that India may lower soybean import tax from 30% to 5%. This event, if it materialises, would have negative implications on Indian demand for CPO.

Zero export taxes (both for CPO and downstream products) instituted since Oct14 in Malaysia and Indonesia has also evaporated refining margins. Unless CPO prices

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exceed US$700/MT, we see this situation persisting throughout 2015.

2. Faster-than-expected rise in production cost in

Indonesia. The unit cost of producing one MT of CPO in Indonesia is rising faster than inflation. Increases in workers' wages, weaker local currency and inefficiencies in estate management have all taken a toll on cost and may further erode margins. Changes in labour and

fertiliser costs may have also have implications on planters’ profitability.

3. Stronger than expected US GDP growth would boost

commodity prices higher than our current expectations. 4. The pace of South American soybean sales may also

have some bearing on price direction in 2015.



Strategy and stock picks

Malaysian planters remain expensive

Regionally, IDX and SGX-listed plantation counters are trading close to average PE; primarily pushed up by Bursa-listed counters, which are trading at +2SD. IDX and SGX-listed counters are trading at slightly below average. Given near-term downtrend in CPO prices, we believe Bursa-listed planters have the most near-term downside risk.

Based on our estimates, Malaysian planters are currently trading at 2.5x PBV (average); while regional planters are trading at 1.4x PBV (or -1SD) – revealing that IDX and SGX-listed planters are trading close to -2SD

Regional plantation PE and PBV

Sources: Companies, Bloomberg Finance L.P., DBS Bank estimates Focus on upstream

The drop in CPO prices below thresholds (US$700/MT for Indonesia and RM2,250 for Malaysia) have led to export tax spreads between CPO and refined products disappearing. The drop in crude oil prices also reduced prices of some oleochemical substitutes, thereby trimming oleochemical margins. We anticipate that this situation to persist in 2015. Despite near-term downside in CPO prices, we prefer counters with mostly upstream operations. We believe integrated counters with significant contribution from both refining and oleochemical segments would continue to be weighed down by persistently weak (if not negative) downstream contributions, at least until export tax spreads between CPO and downstream products expand again.

We do not anticipate palm oil prices to stage a meaningful recovery until 2016 when supply growth decelerates from the drop in new plantings that has taken place since 2012. Until then, we recommend planters with primarily upstream business portfolios such as BW Plantation (please see our initiation report issued separately today), Genting Plantations, TSH Resources, and Bumitama Agri. We are maintaining our FULLY VALUED calls on London Sumatra and IOI Corporation; as we believe their share prices have yet to reflect the weaker near-term outlook.

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Regional 1-year Forward PBV

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Plantation sector capitalisation – still at near term downside risk

Source: Bloomberg Finance L.P., DBS Bank Weak earnings may extend up to 2Q15

The drop in both CPO prices and refining margins are likely to have adverse an impact on planters’ earnings in 1H15. Our expectations are for 2Q15 FFB yields to drop y-o-y, as dry patches in 1Q14 and 3Q14 start to take effect. Concurrently, we expect palm oil prices to remain under pressure from weak soybean oil prices up to end 2Q15 (on peak crushing season from South American soybean harvests). Unless crude oil prices rebound significantly, we do not expect biodiesel demand to recover in 2015. We expect CPO prices to recover towards the end of 2015, as reduced yields and demand recovery should lower year-end palm oil stockpile. Young planters should outperform mature planters in 2015, as lower prices are offset by rising volumes. With most of the integrated planters having significant contribution coming from refineries, we believe pure upstream planters would have shallower earnings downside risk.

A hedge against weaker currencies?

Fast-growing planters offer a currency hedge, as weaker Ringgit/Rupiah is translated fully at the topline, but only c.50% on COGS. While CPO prices have little downside based on fundamentals, any further depreciation in the local currency may be a boon for plantation counters (subject to balance sheet strength) relative to domestic consumption plays. Hence, we recommend bottom fishing in 1Q15 on 12-month horizon, as we believe plantation stocks should remain attractive over the long term. Trends to watch out for in 2015

Notwithstanding soybean and palm oil price directions and currency movements, there are undercurrents which we believe would continue to shape the industry over the long-term.

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CPO price cycle

CPO price cycle CPO price cycle

CPO price cycle

Nov93 - Jul97 Aug97 - Apr01 May01 - Jan05 Feb05 - Oct08

High: Feb97; Start of Asian crisis

US$/MT

Plantation sector market cap index (RHS)

CPO price (LHS)

Brazilian Reais devaluation

QE2 announced in Aug10

La Nina

Nov08 - Nov12

Eurozone debt crisis

Lehmand Bros. bankruptcy Sep08

ECB LTRO Dec11

Severe El Nino

Spike in crude oil prices

US subprime crisis

CPO price cycle

China slowdown

Dec12 -

Record US soybean crop



1. The health food wave?

We expect sustainability, deforestation and habitat loss as well as health issues to be used to target consumer companies to replace the use of palm oil and as reasons to impose protectionist duties on palm oil. While the green and healthy living movements are not new, we believe consumer companies are increasingly required to adjust to cater to increasing demand for greener and healthier products, primarily in developed markets. According to Bloomberg – citing US government data – butter consumption in the US per capita hit a 44-year high in 2012, while margarine consumption dropped to a 70-year low. While this trend and market saturation in developed countries such as Europe and the US, had stagnated Unilever’s spreads business, we understand demand in developing Asia remains largely unaffected. We attribute this to relatively lower income per capita and difficulties in raising food production to meet domestic consumption. This implies that demand for palm oil in Asia should continue to grow.

2. Overcapacity

Led by the biggest players, plantation groups have been investing in downstream capacities to capture additional margins (partly facilitated by favourable export tax structure in Indonesia) throughout the palm oil value chain. These include expansion into refineries (by Astra Agro, Golden Agri, First Resources) and oleochemicals (KLK, IOI, Wilmar and Sime Darby) – where palm oil is gradually

taking market share over traditional feedstock such as tallow and coconut oil due to its relatively cheaper cost. However, capacities have been growing faster than demand. The drop in crude oil prices has also rendered some oleochemical products uncompetitive relative to competing petrochemical products. We see Overcapacity, unfavourable export tax spreads, drop in crude oil prices, and import tax retaliation from buying countries lasting longer than 2015. We believe there should be an effort made by the Indonesian government to re-adjust its export tax policies to avoid long-term structural overcapacity.

3. Dwindling supply of suitable land This has pushed some Indonesian planters to expand their business horizons, from oleochemicals, rubber, seasonal crops, to cattle breeding. While the ground work had already started, we believe progress will remain slow. Malaysian planters have generally been diversifying geographically, and concentrating on improving yields through replanting with better seeds and better practices to avoid delving into non-core businesses. Despite the difficulties in expanding planted hectarage, it is hard for plantation groups to consolidate in our view, as they are inherently owned by family groups, each intent on maintaining their prized possessions. The availability of low borrowing rates has also kept owners from selling plantation land.



STOCK PROFILES

www.dbsvickers.com ed: TH / sa: JC

Bloomberg: BWPT IJ | Reuters: BWPT.JK Refer to important disclosures at the end of this report

BUY Rp400** JCI : 5,160.43 (Initiating coverage) Price Target : 12-Month Rp 545.00 Potential Catalyst: Recovery in CPO prices, strong earnings delivery DBSV vs Consensus: Lower CPO price forecasts Analyst Ben SANTOSO +65 6682 3707 [email protected] Indonesian Research Team +6221 3003 4900

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P *to be changed to Eagle High Plantations **Theoretical ex-rights price using12 Dec14 closing

At A Glance Issued Capital (m shrs) 31,525 Mkt. Cap (Rp bn/US$m) 12,673 / 1,005 Major Shareholders BW Investindo (%) 34.9 Matacuna (%) 12.4 Free Float (%) 31.8

Avg. Daily Vol.(‘000) 60,694

Industry Focus

BW Plantation*

High octane growth

BW Plantation (BW) offers a strong 48% earnings CAGR between 2014F (pro forma) and 2017F

Merger with Green Eagle will boost unplanted land bank to 271,645ha and bolster its balance sheet

Recent share price correction offers opportunity to accumulate for 36% upside

Initiate coverage with a BUY rating and TP of Rp545 (based on DCF)

Strong growth outlook. BW Plantation (BW) is an Indonesian oil palm planter with concessions totaling 94,513ha – spread over Central, West and East Kalimantan. The recent reverse-takeover (RTO) by Green Eagle Holdings (GE) will boost the merged land bank to 419,006ha, including 134,748ha of planted oil palm estates (as at 30 Jun14) – excluding smallholders. Combined immature estates totaling 52,136ha (39% of planted hectarage) is forecast to support 48% earnings CAGR between FY14F (pro forma) and FY17F. Improving free cash flow. BW had taken steps to lower its trade payable from a peak of nine months COGS in 2011 to four months at the end of 2013. We expect this to drop to two months by end-2014 (pro forma); while net gearing should drop to a more manageable 46% by the end of this year (pro forma) from 160% at end-2013. This year, BW is assumed to draw down part of its Rp500bn unused facilities from local banks and to subsequently refinance the Rp700bn bonds (due next year) to fund its ongoing expansion; while GE is expected to have net debt repayment of c.Rp35bn. Capitalise on recent selldown. We estimate BW’s intrinsic value at Rp545/share (based on DCF: WACC 13.3%, Rf 8.8%, ERP 6.9%, Beta 0.9, TG 3%). While we view the RTO’s implied injection of GE estates at US$16.5k/planted ha expensive relative to BW’s pre-RTO valuation, the combined volume growth prospects are now the highest within our coverage. Entry into BW now offers a 36% upside on a 12-month horizon. Initiating with a BUY call. As a combined entity, BW has a significant 20% FFB output CAGR between 2014F (pro forma) and 2017F. Including smallholders, this implies a 21% CAGR. The group’s combined land bank is now the third largest in Indonesia after Golden Agri and Indofood Agri. As the availability of reasonably priced and suitable land dwindles, we believe BW is better positioned to deliver earnings growth over the next three years.

Price Relative

23

43

63

83

103

123

143

163

183

203

360.9

560.9

760.9

960.9

1,160.9

1,360.9

1,560.9

1,760.9

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

Relative IndexRp

BW Plantation (LHS) Relative JCI INDEX (RHS) Forecasts and Valuation FY Dec (Rp bn) 2013A 2014F 2015F 2016F

Turnover 1,144 1,556 4,521 5,951 EBITDA 495 739 1,868 2,616 Pre-tax Profit 255 333 1,039 1,708 Net Profit 182 250 781 1,280 Net Pft (Pre Ex.) 182 250 781 1,280 Net Pft (ex. BA gains) 182 250 781 1,280 EPS (Rp) 5.8 7.9 24.8 40.6 EPS Pre Ex. (Rp) 5.8 7.9 24.8 40.6 EPS Gth (%) (37) 36 213 64 EPS Gth Pre Ex (%) (37) 36 213 64 Diluted EPS (Rp) 5.8 7.9 24.8 40.6 Net DPS (Rp) 0.9 1.0 4.0 6.0 BV Per Share (Rp) 77.2 390.2 416.7 457.5 PE (X) 69.2 50.8 16.2 9.9 PE Pre Ex. (X) 69.2 50.8 16.2 9.9 P/Cash Flow (X) 33.5 22.3 9.4 6.9 EV/EBITDA (X) 32.5 23.9 9.5 6.6 Net Div Yield (%) 0.2 0.2 1.0 1.5 P/Book Value (X) 5.2 1.0 1.0 0.9 Net Debt/Equity (X) 1.6 0.5 0.4 0.4 ROAE (%) 9.4 3.8 6.8 10.4 Other Broker Recs: B: 7 S: 4 H: 3 ICB Industry : Consumer Goods ICB Sector: Food Producers Principal Business: BW Plantation is among the youngest, fast growing Indonesian upstream oil palm planters. After acquisition of Green Eagle Holdings, the combined group manages c.134k ha of oil palm estates as at 30 Jun14 and 272k ha unplanted land bank

Industry Focus

BW Plantation

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F

Turnover 1,144 1,556 4,521 5,951 Net Fixed Assets 799 2,805 2,984 3,151 Cost of Goods Sold (603) (794) (2,557) (3,230) Invts in Associates & JVs 0 0 0 0 Gross Profit 541 762 1,964 2,721 Other LT Assets 5,082 14,003 14,569 15,154 Other Opng (Exp)/Inc (216) (260) (647) (741) Cash & ST Invts 68 758 633 334 Operating Profit 326 501 1,317 1,979 Inventory 159 607 639 807 Other Non Opg (Exp)/Inc 12 6 21 21 Debtors 25 74 87 114 Associates & JV Inc 0 0 0 0 Other Current Assets 66 722 778 988 Net Interest (Exp)/Inc (83) (175) (298) (292) Total Assets 6,200 18,968 19,690 20,549 Exceptional Gain/(Loss) 0 0 0 0 Pre-tax Profit 255 333 1,039 1,708 ST Debt 322 1,384 1,492 924 Tax (73) (83) (259) (428) Creditor 176 423 460 581 Minority Interest 0 0 0 0 Other Current Liab 216 633 726 939 Preference Dividend 0 0 0 0 LT Debt 3,245 4,408 4,130 4,056 Net Profit 182 250 781 1,280 Other LT Liabilities 56 1,081 1,094 1,107 Net Profit before Except. 182 250 781 1,280 Shareholder’s Equity 2,185 11,039 11,788 12,943 Net Pft (ex. BA gains) 182 250 781 1,280 Minority Interests 0 0 0 0 EBITDA 495 739 1,868 2,616 Total Cap. & Liab. 6,200 18,968 19,690 20,549 Sales Gth (%) 21.2 36.0 190.6 31.6 EBITDA Gth (%) (4.6) 49.4 152.6 40.1 Non-Cash Wkg. Capital (142) 347 319 391 Opg Profit Gth (%) (22.0) 54.0 162.5 50.3 Net Cash/(Debt) (3,499) (5,035) (4,989) (4,646) Net Profit Gth (%) (30.7) 37.3 212.9 64.0 Effective Tax Rate (%) 28.7 25.0 24.9 25.0 Cash Flow Statement (Rp bn) Rates & Ratio FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F

Pre-Tax Profit 255 333 1,039 1,708 Gross Margins (%) 47.3 49.0 43.4 45.7 Dep. & Amort. 159 442 527 612 Opg Profit Margin (%) 28.5 32.2 29.1 33.3 Tax Paid 0 0 0 0 Net Profit Margin (%) 15.9 16.0 17.3 21.5 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 9.4 3.8 6.8 10.4 Chg in Wkg.Cap. 50 (473) 29 (72) ROA (%) 3.3 2.0 4.0 6.4 Other Operating CF (88) 266 (251) (420) ROCE (%) 4.5 3.2 5.4 7.9 Net Operating CF 375 569 1,344 1,827 Div Payout Ratio (%) 14.8 12.6 16.2 14.8 Capital Exp.(net) (1,405) (6,132) (1,274) (1,365) Net Interest Cover (x) 3.9 2.9 4.4 6.8 Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.2 0.1 0.2 0.3 Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 6.1 11.6 6.5 6.2 Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 159.0 194.5 79.5 72.6 Other Investing CF (15) (4,881) 0 (1) Inventory Turn (avg days) 153.7 248.7 112.3 101.0 Net Investing CF (1,421) (11,013) (1,274) (1,366) Current Ratio (x) 0.4 0.9 0.8 0.9 Div Paid (47) (27) (32) (126) Quick Ratio (x) 0.1 0.3 0.3 0.2 Chg in Gross Debt 746 789 (170) (642) Net Debt/Equity (X) 1.6 0.5 0.4 0.4 Capital Issues 363 9,839 0 0 Net Debt/Equity ex MI (X) 1.6 0.5 0.4 0.4 Other Financing CF 1 533 8 8 Capex to Debt (%) 39.4 105.9 22.7 27.4 Net Financing CF 1,063 11,134 (194) (761) Z-Score (X) 1.4 1.5 1.9 NA Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (Rp) (124) (178) (176) (164) Chg in Cash 18 689 (124) (299) Opg CFPS (Rp) 11 37 46 67 Free CFPS (Rp) (36) (197) 2 16 Quarterly / Interim Income Statement (Rp bn) Segmental Breakdown / Key Assumptions FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 FY Dec 2013A 2014F 2015F 2016F

Turnover 240 358 357 388 Revenues (Rp bn) Cost of Goods Sold (133) (162) (181) (225) FFB 49 0 0 0 Gross Profit 107 196 176 164 CPO 1,019 1,394 4,129 5,486 Other Oper. (Exp)/Inc (58) (72) (44) (71) PK 77 162 392 464 Operating Profit 48 124 132 93 Refined oil 0 0 0 0 Other Non Opg (Exp)/Inc 0 13 5 4 Associates & JV Inc 0 0 0 0 Total 1,144 1,556 4,521 5,951 Net Interest (Exp)/Inc (22) (23) (23) (22) Exceptional Gain/(Loss) 0 0 0 0 Key Assumptions Pre-tax Profit 26 114 115 75 CPO price (RM/MT) 2,377 2,380 2,300 2,530 Tax (5) (40) (30) (19) Own mat. oil palm (ha) 39,302 86,497 99,561 59,677 Minority Interest 0 0 0 0 CPO sales vol. (MT) 141,195 168,662 538,038 659,622 Net Profit 22 74 85 56 PK sales vol. (MT) 23,610 30,556 83,799 101,677 Net profit bef Except. 22 74 85 56 Avg. USD/IDR rate 10,849 11,695 11,750 11,750 EBITDA 64 250 154 113 Sales Gth (%) (13.6) 49.4 (0.4) 8.8 EBITDA Gth (%) (36.4) 288.5 (38.4) (26.8) Opg Profit Gth (%) (43.8) 156.2 6.0 (29.2) Net Profit Gth (%) (56.1) 241.2 14.4 (33.8) Gross Margins (%) 44.5 54.7 49.3 42.2 Opg Profit Margins (%) 20.2 34.7 36.9 24.0 Net Profit Margins (%) 9.1 20.7 23.8 14.5 Source: Company, DBS Bank



DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published,the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Oct 2014 Astra Agro Lestari, London Sumatra P, Indofood Agri Resources, Golden Agri Resources, Wilmar International.

2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 31 Oct 2014.

3.

Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the company mentioned.



DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or

located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is not for distribution into Australia.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR") (formerly known as HwangDBS Vickers Research Sdn Bhd). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States

Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd.

12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888

Company Regn. No. 196800306E

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