Sawit Sumbermas Sarana

(SSMS IJ)
Every cloud has a silver lining
Despite having downgraded our rating on the crude palm oil (CPO) sector to
Neutral (from Overweight), we are still positive on Sawit Sumbermas Sarana
(SSMS), maintaining our 12-month forward target price of IDR1,900 with a Trading
Plantation Buy call. We are optimistic on SSMS due to 1) its strong fundamental outlook given
the young age profile (7.8 years) of its palm oil plantations; 2) its strategy to acquire
new planted area near its existing plantations to boost growth; and 3) its plan to
Company Report
refinance debt through bond issuance.
July 4, 2017
Floor CPO extraction rate maintained at 23.0%
In 1Q17, SSMS’ fresh fruit bunch (FFB) production jumped to 350,400 tonnes
(Maintain) Trading Buy (+39.3% YoY), achieving 21.6% of our full-year estimate. We estimate SSMS’ FFB
production will reach 1.6mn tonnes and 1.9mn tonnes in 2017 and 2018,
Target Price (12M, IDR) 1,900 respectively. However, its CPO extraction rate in 1Q17 slipped to 23.5% (vs. 24.3%
in 1Q16), as third-party FFB production grew at a faster rate in the quarter (+52.8%
Share Price (7/3/17, IDR) 1,650 YoY) than nucleus plantation FFB production (+36.5% YoY). Nevertheless, with SSMS
maintaining its floor CPO extraction rate at 23.0% for 2017, we believe nucleus
Expected Return 15.2% plantations will still dominate its total FFB production this year.
Ambitious target set for planted area
As we noted in our 2H17 palm oil sector outlook report, “Dark clouds on the
Consensus OP (17F, IDRtr) 1.2 horizon”, SSMS has set an ambitious target of 150,000 ha in total planted area by
2018 (from just 34,000 ha in 2014). All of its palm oil plantations are located in
EPS Growth (17F, %) 7.1 Pangkalan Bun, the capital city of West Kotawaringin, Central Kalimantan. The city’s
P/E (17F, x) 24.8 major economic driver is the agriculture sector. In 2015, West Kotawaringin’s total
Industry P/E (17F, x) 14.1 palm oil plantations amounted to 212,078 ha, while SSMS’ stood at 73,000 ha.
Benchmark P/E (17F, x) 16.9
Market Cap (IDRbn) 15,716.3
SSMS to take advantage of S&P’s rating upgrade
SSMS plans to refinance its bank loans through bond issuance, taking advantage of
Shares Outstanding (mn) 9,525.0
S&P’s recent upgrade of Indonesia’s credit rating. As of 2016, the company’s total
Free Float (mn) 2,540.1
debt amounted to IDR3.0tr. (We have yet to obtain information on the exact
Institutional Ownership (%) 1.0
amount of loans to be refinanced.) S&P’s upgrade should lower the cost of funds
Beta (Adjusted, 24M) 0.7
going forward, making this a good time for SSMS to refinance its debt. As we
52-Week Low (IDR) 1,300
explained in our strategy report “Indonesia just got better”, the macroeconomic
52-Week High (IDR) 1,920
backdrop remains favorable for corporate earnings expansion, and the policy
(%) 1M 6M 12M environment continues to be supportive of further economic growth. Notably,
Absolute -5.7 17.9 -13.2 thanks to S&P’s upgrade, Indonesia’s 10-year bond yield had fallen to 6.8% as of
Relative -8.6 5.8 -32.0 June 21 (from 7.0% on May 19). Indeed, we believe upgrades from credit rating
agencies serve as market-driving catalysts, as was the case with past upgrades by
JCI SSMS
Moody’s (January 18, 2012) and Fitch (December 15, 2011), which resulted in lower
(D-1yr=100)
120
110 market yields and rupiah appreciation against the greenback, respectively.
100
90
80
Maintain TP of IDR1,900 with a Trading Buy recommendation
For SSMS, we maintain our 12-month forward TP of IDR1,900 with a Trading Buy
70
60
call. We are positive on SSMS mainly due to the young age profile of its palm oil
6/16

10/16
11/16
12/16

2/17

4/17
7/16
8/16
9/16

1/17

3/17

5/17
6/17
7/17

plantations. We note that one downside risk is lower global CPO prices, which
would likely hit the company’s earnings.
PT. Mirae Asset Sekuritas Indonesia 12/14 12/15 12/16 12/17F 12/18F 12/19F
FY (Dec.)
Revenue (IDRbn) 2,616.4 2,371.9 2,722.7 2,963.4 4,157.2 4,875.3
Agriculture Gross Profit (IDRbn) 1,319.6 1,247.9 1,466.1 1,537.6 2,142.2 2,629.1
Operating Profit (IDRbn) 991.5 880.0 984.4 1,046.0 1,497.4 1,872.9
Net Profit (IDRbn) 736.3 559.0 591.7 633.1 1,001.9 1,286.0
Andy Wibowo Gunawan
+62-21-515-1140 (ext.: 243) EPS (IDR) 77.3 58.7 62.1 66.5 105.2 135.0
andy.wibowo@miraeasset.co.id BPS (IDR) 287.7 318.5 362.6 411.0 489.9 591.2
P/E (x) 21.5 33.2 22.5 24.8 15.7 12.2
P/B (x) 5.8 6.1 3.9 4.0 3.4 2.8
ROE (%) 26.9 18.4 17.1 16.2 21.5 22.8
ROA (%) 10.9 8.0 8.3 7.4 10.5 11.9
Note: NP refers to net profit attributable to controlling interests
Source: Company data, Mirae Asset Sekuritas Indonesia Research
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
July 4, 2017 Sawit Sumbermas Sarana

Figure 1. 3rd FFB production growth outpaced nucleus… Figure 2. …leading to a lower CPO extraction rate

('000 tonnes) (%)

Nucleus 3rd parties
320.0 24.4 24.3
285.0
270.0 24.2

208.7 24.0
220.0
23.8
170.0
23.6 23.5
120.0
23.4
65.4
70.0 23.2
42.8

20.0 23.0
1Q16 1Q17 1Q16 1Q17

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Company data, Mirae Asset Sekuritas Indonesia Research

Figure 3. SSMS’ total planted area outlook Figure 4. SSMS’ interest-bearing debt trend

('000 ha) (IDR tr)

160.0 150.0 3.5

148.0 3.2
3.0
140.0 3.0

120.0
2.5
100.0
2.0 1.8
80.0 70.0 73.0
1.5 1.3
60.0
1.1

40.0 34.0 1.0

20.0 0.5
2014 2015 2016 2017F 2018F 2012 2013 2014 2015 2016

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Bloomberg, Mirae Asset Sekuritas Indonesia Research

Figure 5. Indo’s 10-year bond yield fell after S&P’s upgrade Figure 6. SSMS’ trailing P/B band
(%) (x)

8.5 8.0
8.3 7.5
8.1 7.0
7.9 6.5
7.7 6.0
7.5 5.5
7.3 5.0
7.1 4.5
6.9 4.0
6.7 3.5
6.5 3.0
1/14

11/14

11/15

11/16
3/14
5/14
7/14
9/14

1/15
3/15
5/15
7/15
9/15

1/16
3/16
5/16
7/16
9/16

1/17
3/17
5/17

6/16 7/16 8/16 9/16 10/16 11/1612/16 1/17 2/17 3/17 4/17 5/17 6/17

Source: Bloomberg, Mirae Asset Sekuritas Indonesia Research Source: Bloomberg, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Sekuritas Indonesia Research 2

July 4, 2017 Sawit Sumbermas Sarana

Sawit Sumbermas Sarana (SSMS IJ/Trading Buy/TP IDR1,900)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

Year end Dec 31 (IDR bn) 2016 2017E 2018E 2019E Year end Dec 31 (IDR bn) 2016 2017E 2018E 2019E
Revenue 2,722.7 2,963.4 4,157.2 4,875.3 Current assets
Cost of goods sold -1,256.6 -1,425.8 -2,015.0 -2,246.2 Cash & equivalents 162.5 180.2 275.7 497.3
Gross profit 1,466.1 1,537.6 2,142.2 2,629.1 Short-term financial asset 0.0 0.0 0.0 0.0
SG&A -481.7 -491.6 -644.8 -756.2 Account receivable 501.4 544.0 763.1 894.9
EBIT (Adj.) 984.4 1,046.0 1,497.4 1,872.9 Inventory 121.8 136.7 193.2 215.4
EBIT 984.4 1,046.0 1,497.4 1,872.9 Other current assets 1,011.1 1,001.1 1,021.7 1,036.5
Net interest income (loss) -47.4 -216.7 -183.7 -185.7 Non-current assets
Income (loss) from associates 0.0 0.0 0.0 0.0 Net fixed assets 1,749.1 3,661.5 4,287.7 5,019.0
Others -89.5 6.9 9.6 11.3 Investment 95.0 95.0 95.0 95.0
Recurring profit 847.4 836.1 1,323.3 1,698.5 Other long-term assets 3,522.0 2,919.8 2,950.7 3,015.7
-255.7 -203.0 -321.3 -412.5 7,163.0 8,538.4 9,587.1 10,773.
Income tax Total assets
8
Net profit 591.7 633.1 1,001.9 1,286.0 Current liabilities
Net profit (Controlling 591.7 633.1 1,001.9 1,286.0 57.2 60.3 85.2 95.0
Account payable
Interests)
Short-term debt 0.0 19.0 18.5 18.7
Growth & margins 2016 2017E 2018E 2019E Other current liabilities 1,257.4 1,484.5 1,786.1 1,933.0
Revenue growth 14.8 8.8 40.3 17.3 Non-current liabilities
Gross profit growth 17.5 4.9 39.3 22.7 Long-term debt 2,220.2 2,908.7 2,833.0 2,868.9
EBIT growth 11.9 6.3 43.2 25.1 Other long-term liabilities 174.4 122.7 172.7 203.1
Net profit growth 5.8 7.0 58.3 28.4 Total liabilities 3,709.2 4,595.3 4,895.6 5,118.6
EPS growth 5.8 7.0 58.3 28.4 Controlling interests 3,453.8 3,915.0 4,666.4 5,631.0
Gross margin 53.8 51.9 51.5 53.9 Non-controlling Interest 0.0 28.1 25.1 24.2
EBIT margin 36.2 35.3 36.0 38.4 Shareholder's equity 3,453.8 3,915.0 4,666.4 5,631.0
Net profit margin 21.7 21.4 24.1 26.4 BVPS (IDR) 362.6 411.0 489.9 591.2

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

Year end Dec 31 (IDR bn) 2016 2017E 2018E 2019E Year end Dec 31 2016 2017E 2018E 2019E
Cash flow from operations ROE (%) 17.1 16.2 21.5 22.8
Net profit 591.7 633.1 1,001.9 1,286.0 ROA (%) 8.3 7.4 10.5 11.9
Depr. & amortization 240.6 155.0 334.0 373.1 Inventory days 35.4 35.0 35.0 35.0
Others -955.4 338.0 299.4 123.2 Receivables days 67.2 67.0 67.0 67.0
Change in working capital 373.3 -54.4 -250.7 -144.2 Payable days 16.6 15.4 15.4 15.4
Cash flow from investing Net debt/equity (x) 0.8 0.9 0.7 0.5
Capital expenditure 218.0 -1,942.2 -822.1 -1,012.0 Interest cover (x) 5.4 3.3 5.1 6.4
Others -583.8 477.0 -169.0 -157.4
Cash flow from financing
Dividends -168.3 -158.3 -250.5 -321.5
Increase in equity 13.6 14.5 -3.0 -0.9
Increase in debt -147.6 606.3 -94.8 44.9
Others 75.8 -51.7 50.0 30.3
Beginning cash 521.8 162.5 180.2 275.7
Ending cash 162.5 180.2 275.7 497.3
Source: Company data, Mirae Asset Sekuritas Research estimates

Mirae Asset Sekuritas Indonesia Research 3

July 4, 2017 Sawit Sumbermas Sarana

APPENDIX 1

Important Disclosures & Disclaimers

Disclosures
As of the publication date, PT Mirae Asset Sekuritas Indonesia, and/or its affiliates do not have any special interest with the subject company and do not own
1% or more of the subject company's shares outstanding.

Stock Ratings Industry Ratings

Buy Relative performance of 20% or greater Overweight Fundamentals are favorable or improving
Trading Buy Relative performance of 10% or greater, but with volatility Neutral Fundamentals are steady without any material changes
Hold Relative performance of -10% and 10% Underweight Fundamentals are unfavorable or worsening
Sell Relative performance of -10%
* Ratings and Target Price History (Share price (----), Target price (----), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))
* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.
* Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material
development.
* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of
future earnings.
The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic
conditions.

Analyst Certification
Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily
responsible for this report. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject
companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is,
or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of PT Mirae Asset Sekuritas
Indonesia, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the
institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or
have reason to know of any actual, material conflict of interest of the Analyst or PT Mirae Asset Sekuritas Indonesia except as otherwise stated herein.

Disclaimers
This report is published by PT Mirae Asset Sekuritas Indonesia (“Mirae”), a broker-dealer registered in the Republic of Indonesia and a member of the
Indonesia Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such
information has not been independently verified and Mirae makes no guarantee, representation or warranty, express or implied, as to the fairness,
accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Bahasa Indonesia. If this
report is an English translation of a report prepared in the Indonesian language, the original Indonesian language report may have been made available to
investors in advance of this report. Mirae, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from
the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect
transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have
substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this
report would violate any laws and regulations or subject Mirae and its affiliates to registration or licensing requirements in any jurisdiction should receive or
make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or
reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae. Mirae, its affiliates and their
directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or
offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either
as principals or agents. Mirae and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to
provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the
investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past
performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.

Mirae Asset Sekuritas Indonesia Research 4

July 4, 2017 Sawit Sumbermas Sarana

Distribution
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within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and
other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as
“Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any
of its contents.
United States: This report is distributed in the U.S. by Mirae Asset Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major
institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their
acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied
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securities discussed herein should contact and place orders with Mirae Asset Securities (America) Inc., which accepts responsibility for the contents of this
report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such
case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements.
Hong Kong: This document has been approved for distribution in Hong Kong by Mirae Asset Securities (Hong Kong) Ltd., which is regulated by the Hong
Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for
distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws
of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person.
All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae or
its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae and its
affiliates to any registration or licensing requirement within such jurisdiction.

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Mirae Asset Sekuritas Indonesia Research 5