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Good morning,
Key takeaways from
company visit to Eagle High Plantations
We met the Chief Financial Officer of Eagle
High Plantations (BWPT IJ, Not Rated) to discuss the outlook of the company.
Followings are key takeaways from the meeting:
¨ FFB
production to grow around 15%- 20% YoY in FY17 and 20%YoY in FY18. Management guides
that its Fresh Fruit Bunch (FFB) production growth should reach 15%-20%YoY in
FY17 and 20% YoY in FY18 as management believe that: 1) favourable age
profile of its plantation (average age of 7 years old). 2) recovery from El
Nino should boost its FFB production in years ahead.
¨ Debt
level should decrease to IDR6trn in 2019-2020. As of 30 June
2017, Eagle High has interest bearing debts around IDR8.2trn, interest
expenses of IDR366bn and cash outflow for interest payment of IDR402bn.
Management estimates its debt level should decrease to IDR6trn level in
2019-2020. Management indicates that its comfortable debt to equity ratio is
around 1.0x (vs current debt to equity ratio of 1.3x)
¨ Positive
free cash flow since 2017. Eagle High booked negative free cash flows
every year until 2016 as Eagle High did aggresive new planting in years ago.
Eagle High has started to book positive free cash flow since 2017 because of:
1) maturing plantation profile. 2) Eagle High has stop doing new planting.
Eagle High would spend capex for building two palm oil mills per year in the
next three years.
¨ The
company should start to book positive earnings in FY18F. Eagle High booked
net loss (net of minority interest) of IDR124.6bn in 6M17, which mostly due
to significant interest expense of IDR366bn. Management estimates Eagle High
should start to book positive earnings in FY18, although the estimated FY18F
positive earnings is still very small. The main driver is sizable FFB
production growth from maturing plantation profile should improve its
profitability.
¨ Not
rated.
We have no rating on Eagle High. Currently, Eagle High is traded at EV/ha of
USD7,317 (average EV/ha of Indonesian plantation companies is USD8,700). (Hariyanto Wijaya, CFA, CPA, CMT)
Link to daily
report: Indonesia Morning Cuppa 041017
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Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia
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