London  Sumatra  (Lonsum)’s  1HFY14  results  were  in  line  with  our expectations.  We  maintain  our  NEUTRAL  call  and  TP  unchanged  at IDR2,372, rolling over to 14x CY15 earnings.  We raise our palm segment earnings forecast but cut that for seed and rubber earnings, resulting in marginally higher overall CY14 earnings.

Results  within  estimates.  Lonsum’s  1H  core  earnings  were  largely within  expectations  as  stronger  palm  and  kernel  segment  earnings compensated for weakness in the seed and rubber segments. 

FFB  production  growth.  Lonsum’s  1H  fresh  fruit  bunches  (FFB)production grew 21.5%, much stronger than our expectation of a 3.4% contraction. We raise our FFB production assumption to 1.34m tonnes from  1.21m  tonnes  earlier.  We  also  lift  our  forecasts  for  palm  oil  and kernel segment earnings to IDR1,263.7bn from IDR1,057.0bn previously. 

How  the  rubber  and  seed  segments  fared.  Rubber  production contracted 8.3% q-o-q while sales  dropped 28.1% during the period. On YTD basis, sales were 2.1% lower although production was up by 3.1%. The segment swung into a loss during the quarter. We slash our rubber segment  earnings  to IDR8.6bn    from IDR110.9bn,  given the continuing price  weakness.  Meanwhile,  seed  sales  continued  to  remain  weak  at 1.063m  pieces  despite  management’s  expectation  of  there  being  no repeat of the  weak  sales in  1Q.  Hence, we trim our seed sales volume from 13.5m pieces for FY14 to 7.7m pieces.

Forecast changes.  We raise our  FY14  earnings  forecast  marginally  to IDR1,031bn from IDR1,011bn previously,  but trim our  FY15 forecast    to IDR1,156bn (from IDR1,170bn). 

TP unchanged.    The stock’s TP remains unchanged at IDR2,372 as we roll  over  our  valuation  horizon  to  14x  CY15.  We  lower  our  target  P/E from  16x  earlier  due  to  the  volatile  results  and  he nce  lower  earnings visibility. Maintain NEUTRAL.

Source: RHB