jawa ij - rubber does it buy 600

8/3/2019 Jawa Ij - Rubber Does It Buy 600

1/15

PT. Jaya Agra Wattie Tbk.

JAWA.IJ Buy - TP: 600

Company Update

Strong Growth Profile

Right Timing for Rubber HighPT J.A. Wattie has a total of 67,697.33 Ha under Cultivation Right (HGU) and

Location Permit. The number above includes plasma plantation where as

much as 29,339.38 Ha or 43% of total area had been planted.

As of 2010, their palm oil plantation had an age profile consisting of 11,321Ha or 72% of total planted under the immature classification, 3,409 Ha or

22% under the young period classification and 1,010 Ha or 6% under peak

period classification. (Refer to chart on page 9). Their FFB yield had recorded

a CAGR (compounded annual growth rate) of 39% for the years starting from

2006 to 2010.

As for J.A. Wattie rubber plantation, their age profile as of 2010 had 5,004 ha

or 53% of total planted classified into immature category, 624 ha or 7% into

young category, 3,143 ha or 34% into peak period category and 583 ha or 6%

into off-peak category (read: plantation with maturity age of 20 and above

years).

Their plantations age profile for both rubber and palm oil are entering their

peak productive period and are relatively still young compared to the other

plantations. Peak production period coupled with strong average selling price

for both commodities translated into boosted revenue. In plantation, timing

is everything, and J.A. Wattie in our view had the right timing.

Just in Time


2/15


Downstream Products of Rub

Rubber

Trees

rubber latex

rubber seeds

er - Rubber and Its Uses

latex medical devices & laboratory

crumb rubber

tire

other vehicle equipment

apparel

industrial equipment

baby gear

oil

resin

oil paint

varnish

shell

filler

briquettes

October 31, 2011

stethoscope tubing

gloves

bycycles pedal

windshield trim

shoes, sandals

diving suit

oil seal

tubes

belt conveyor / transmission


3/15


Potential Area of Rubber Proc

Source: BPKM

JAWA Plantation Locations

essing Industry

October 31, 2011


4/15


Getting You from A to B

The Bull in Rubber

Emerging Market Growing CBridgestone Corp., the worlds larg

to boost production to meet risin

representing 45% of the global tota

Production in Indonesia is predicte

timated at 1.02 million tons compa

Countries. While there is little imp

are located on the other part of th

ports. This condition if prolonged

is one of the main suppliers of natu

Source: Bloomberg

Indonesian Natural Rubber Exp

Country of DestinationVolume (K

United States 52,9

Japan 34,0

China 28,5

India 12,1

Korea 10,5

-

3,000,000

6,000,000

9,000,000

12,000,000

15,000,000

18,000,000

21,000,000

2005 2006 2007 2008 20

Other

CountriesAuto Sale

US Japan China

ubber does it.

nsumption Car Salesst tire maker, stated that it would spend a record

demand from emerging markets. Demand from

l, is likely to grow 0.7% in 2011 compared with a 4.

d at 2.96 million tons versus 2.74 million tons, whil

red with 939,000 tons, according to Association of

ct of rains and floods in Thailand (the biggest gro

e country, floods in Thailand have reportedly disru

ay have an upward drive toward natural rubber r

ral rubber in the world.

rts by Country of DestinationMay 2011 Janua

g) Total Value (US$) Volume (Kg)

14,389 256,749,134 263,408,

22,049 164.990,557 165,787,

47,732 136,257,002 158,786,

18,964 57,102,654 29,142,

36,678 50,348,860 47,356,

-

150,000.00

300,000.00

450,000.00

600,000.00

750,000.00

900,000.00

9 2010 2011*

Indonesias

India Indonesia

Chinas

sales fr

28%, f

and th

Rubber

tires. A

correlat

rubber i

grow.

October 31, 2011

f 300 billion yen next year

hina, India, and Malaysia,

% gain in 2010.

e in Malaysia output is es-

Natural Rubber Producing

er) as rubber plantations

pted some movements to

membering that Thailand

y May 2011

Total Value (US$)

20 1,281,671,425

17 818,989,141

95 776,178,662

38 138,176,460

97 229,688,988

C AGR for their auto

m year 2005 2010 is

llowed by India 13%

n by Indonesia 7%.

downstream product is

to sale is pretty much

d with tire sales thus

ndustry has rooms to


5/15


Tire Industry OutlookThere are two types of rubber tir2pneumatic tires tire used for al

cycles, airplanes and off-road tires.

Information In The Commodities Apanies were doing fine since Good

the production of clothing. But th

producing a boom for the two of th

Natural Rubber

Passenger Tire 14%

Truck Tire 27%Source: Rubber Manufacturers Association

Source: Bloomberg

0

200

400

600

800

Jan-99 Jan-01 Jan-03 Jan-05

Mn China & US Tire

China Industrial Tire Output

Adjusted Automotive Parts Ac

3.0%

6.0%

9.0%

12.0%

15.0%

Tire Producer Pric

Change

es: 1solid tires used on industrial machinery an

ost all free-moving vehicles including automobiles

In general, the larger the tire the greater the share

rea, 2011) Looking back to Dow Jones as a historiears invented vulcanization which made the uses

e turnaround story in rubber was when FORD m

e four listed rubber companies at the time: Goodri

Typical Tire Composition by Weight

Synthetic Rubber Carbon black Stee

27% 28% 14-1

14% 28% 14-1(RMA)

45

60

75

90

Jan-07 Jan-09

BnOutput

cessories & Tire Stores

Index YoY

Chinas2010 is

you can

Tire Ou

Chinas

at a ve

to US.

US Tircreased

0.5%

materia

October 31, 2011

on military vehicles and

, trucks and buses, motor-

of natural rubber (Market

al reference, rubber com-f rubber more practical in

ass-produced automobile,

h BF and US Rubber.

l Filler

5% 16-17%

5% 16-17%

GDP growth for year

3 times US GDP and as

see from the China & US

put chart beside us that

tire industry is growing

y steep pace compared

Price or Tire PPI in-

12.3% YoY and declined

oM due to increasing raw

ls price.


6/15


0

300

600

900

1200

Jan-05 Jan-06 Jan-07 Jan-08

RSS 3, TSR 20 Rubber PriceVs Crude B

RSS3 TSR20

Rubber Price Movement

High Correlation between Rubb

STATISTICAL SUM

Natural Rubber Production

2008 2009

Year Q1 Q2

Asia 9,399 1,839 2,057

Africa 447 98 95

Latin

America247 64 72

Total 10,128 1,985 2,230

Natural Rubber Consumption

N. America 1,179 232 147

Lat. America 587 122 106

EU 27 1,256 203 145

Other Euro 230 38 38

Africa 126 25 21

Asia /

Oceana6,854 1,424 1,820

Total 10,175 2,044 2,267

World

Surplus /

Deficit

-47 -59 -37

Figure 1 Rubber Price Movement Vs Crude Brent

Source: Bloomberg

30

60

90

120

150

Jan-09 Jan-10 Jan-11

Crude OilMovementrent Oil

Crude Brent Oil

r Price and Crude Oil

There are t

ral Rubberand Synthe

derivatives

close corre

ment. Rub

tires, for p

vehicles, an

tire like biand off-roa

tear strengt

to heat, na

ble for high

racing cars,

crafts.

MARY OF WORLD RUBBER SITUATION (000 tonne

2010

3 Q4 Year Q1 Q2 Q3

2,405 2,740 9,042 2,175 2,071 2,728

112 118 423 102 110 119

55 62 253 67 75 57

2,570 2,905 9,690 2,361 2,271 2,904

183 228 790 280 261 265

120 139 488 153 162 152

223 258 829 289 282 274

48 53 177 50 57 62

25 22 94 26 26 27

1,896 1,845 6,984 1,700 1,889 2,027

2,484 2,534 9,329 2,496 2,677 2,806

86 371 361 -135 -406 98

Oil.

October 31, 2011

wo types of rubber: Natu-

(NR) tapped from treestic Rubber (SR) made of

from petroleum thus the

lation to oil price move-

er is consumed mainly in

ssenger cars, commercial

d a great variety of other

ycle tires, airplane tires,tires. Due to its superior

h and excellent resistance

ural rubber is more suita-

performance tires used in

trucks, buses, and air-

s)

2011

Q4 Year Q1

2,663 9,637 2,398

129 459 104

64 263 73

2,865 10,401 2,571

266 1,071 298

147 613 148

287 1,132 313

58 227 65

23 101 28

2,017 7,632 1,701

2,799 10,778 2,552

66 -377 19


7/15

PT. Jaya Agra Wattie Tbk. October 31, 2011

Future of Rubber

Increasing Demand on the back of Global Economy Growth

According to a statement made by Stephen Evans, secretary general of the International Rubber Study Group during the

World Rubber Summit, the IRSG predicted that global rubber consumption will increase 47.1% to 31.5 million tons by

2020 from 21.4 million tons in 2009; of that, natural rubber will account for 14.6 million tons and synthetic rubber 16.9

million tons. Tires will consume 19.4 million tons of rubber in 2020 and general rubber goods 12.1 million tons. Do re-

member that synthetic rubber is made of petroleum derivatives. What will happen in the long run if oil shoots up to

$160 - $180 a barrel? Less growth for synthetic rubber as the economic value of selling general rubber goods is out-

weighed by the cost component of producing SR. Naturally, NR will pick up the slack.

Company Profile Business Activities


8/15


8 000

10,000

Rubbe

JAWAs Track Record

Table 1.1 - J.A. Wattie Rubber and CPO

2006 2007 2008

CPO

Sales

4,036

CPO

ASP

4,477

Rubber

Sales

6,410 7,605 8,001

Rubber

ASP

19,545 17,655 27,526

Source: Company

As you can see from table above, there w

creased significantly in the year of 2010 du

helped provide a floor for JAWAs revenu

however average selling price for rubber ju

The great news is sales volume for both CPsales. Remember the favorite multiplier eff

multiplier effect in the year of 2011 as ave

49.4% respectively.

-

4,000

8,000

12,000

16,000

20,000

24,00028,000

32,000

2008 2009 2010

tons Crude Palm Oil (

Production Sales

r

Sales Figures

2009 2010 CAGR 1H 11

30,355 19,762 121% 11,700

6,005 6,952 7,860

8,485 8,392 7% 5,100

18,022 29,442 44,000

as a spike in both CPO and rubber prices in 2010.

e to decline on third party purchase, price appreci

. Sales volume for rubber also decreased a mere

mped 63.4% to Rp.29,442/kg.

O and rubber in 1H 11 respectively represented 5ect that I had mentioned, price x volume. We are g

rage selling price for both CPO and rubber increas

1H 2011

PO)

0

2000

4000

6000

8000

2009 2010

tons Palm Kernel

Production

October 31, 2011

Although sales in CPO de-

ation in both commodities

1.1% Year on Year (YoY),

.2% and 60.8% of FY 2010ing to see the wonders of

d significantly; 13.1% and

1H 2011

(PK)

Sales


9/15


Plantation Age Profile

Source: Company, eTrading Securities

Assuming a 3.8% and 4.1% new planting ofprofile for both palm and rubber plantatio

are price-taker meaning that they are not

ucts that they sell (read: pricing power). I

commodities benchmark price; in our cas

Sheet) 3 and TSR (Technically Specified R

their peak period where growth is support

fects from the drop in commodities price.

Plantation Classification

Area in hectares

C l i i Ri h & L i P i

72%, 11,3

21 Ha

22%;

3,409 Ha

6%; 1,010

Ha

Palm Age Profile 20

Immature Young Peak

53%;

5,004 Ha

7%; 624

Ha

34%;

3,143 Ha

6%; 583

Ha

Rubber Age Profile 2

Immature Young Peak

total area planted annually for 2011 2015, we hunder J.A. Wattie. We would like to remind you t

like Gudang Garam and or Indofood where they ca

n other words their revenue are pretty much cor

CPO price in Rotterdam index and for rubber pr

bber) 20 in Singapore Commodity Exchange. Thu

ed by production volume is good in our view. Volu

ubber Oil Palm Coffee

32 435 46 35 125 51 554 59

10

14%;

2,628 H

67%;

12,608 Ha

20%;

3,722 Ha

Palm Age Profil

Immature Young

10A

ature

18

1,93

44%;

4,622

28%;

2,908 Ha

10%;

1,037 Ha

Rubber Age Profi

Immature Young

October 31, 2011

ve come to the above ageat commodity companies

n set a price for the prod-

related to the volatility of

ice are RSS(Ribbed Smoke

, any companies entering

me will help offset any ef-

Tea Total

504 30 68 619 86

2015F

Peak

%;

2 Ha

a

le 2015F

Peak Mature


10/15


Financial Overview 1H 11

Source: Company

Source: Company

167.1

301.5

369.7

-

100.00

200.00

300.00

400.00

500.00

2007 2008 2009

Rp Bn Revenu

CAGR 2007 - 2010 = 35

10.2 27.8 43.5 80.

33.0%

39.7%

33.8%

44.1

-

20.0

40.0

60.0

80.0

100.0

120.0

2007 2008 2009 201

Rp Bn Net Income & Gr

Net income

36.190.0

120.0

Rp Bn Net Income & O

CAGR 2007 2010 = 98.7% JAWAwhoop

annual

over th


11/15


Cost Structure - FY 2010

Source: Company

Source: Company

In the worst case scenario where rubber pr

tilizer and it wont hurt the trees much. In

tom. The difference in palm trees and rubb

47%

4%9%

40%

Rubber Cost Structur

22%

22%

25%

31%

Palm Cost Structure

ice goes back to below $1/kg, per management, th

fact they wont tap the rubber trees if rubber price

er trees are their preservation practices: 1With ru

- 2010

Wages

Fertilizer

Depr. &

Amort.Overhead

- 2010

Wages

Fertilizer

Depr. &

Amort.

Overhead

Biggest cosplantation i

ber is very l

the get-go

tapping pro

chanize an

However ru

durable tha

they dont r

lizing.

For Palm,pretty muc

mature plature will lea

the biggest

easier to m

harvesting

October 31, 2011

ey can cut back on the fer-

are very much in the bot-

ber you can hold back on

structure in rubber

actually labor. Rub-

abor intensive, from

(nursery) until the

ess, its hard to me-

y of the process.

ber trees are more

palm, meaning that

quire as much ferti-

he cost structure is

even out. In a more

ntation, cost struc-n on fertilizing being

part of the pie. Its

chanize some of the

rocess.


12/15


J.A. Wattie Financial Breakdo

Source: Company

There may be some concerns that J.A Wa

company is deworseification. That mightthan 5%. However that is not the case as y

year 2008 to 2010. In fact there might be

price of rubber, considering our belief that

J.A. Wattie is concentrating more and mo

hedge element, there is that multiplier eff

commodities and J.A. Wattie will benefit fr

COMPANY PROFILE

PT Jaya Agra Wattie is a publicl

business corporation engaging

tion, processing and agricultu

and marketing activities.

73.0% 41.4

6.0%

49.3

0%

20%

40%

60%

80%

100%

2008 2009

Revenue Breakdow

Rubber CPO Tea

n

ttie is too diversified a plantation and some belie

be true if revenue contribution by crop other thaou can see from the chart above specifying JAWAs

a hedge element in the case when crude oil price

palm oil price is more stable than rubber price. Fu

e to their two main products which is: rubber an

ect in the case where economy is doing great, dri

m the two crops price hike.

listed agri-

in planta-

ral logistics

strengthens its business b

versification approach by c

premium plantations of p

modities such as rubber,

(CPO) ff d t

59.8%

33.2%

2010

n 2008 - 2010

Coffee Others

October 31, 2011

e diversification for some

palm and rubber is morerevenue breakdown from

ell and dragged down the

rthermore as you can see,

palm oil. Other than the

ing up the prices of both

se through a di-

ltivating various

imary raw com-

crude palm oil


13/15


Earning Sensitivity Analysis

Incremental Change Rubber Price (Rp/Kg) EPS (Rp) EPS Change (%)

+30% 40,664 55.11 36.2%+20% 37,536 50.23 24.1%

+10% 34,408 45.34 12.1%

Base 31,280 40.46

-10% 28,152 35.58 -12.1%

-20% 25,024 30.70 -24.1%

-30% 21,896 25.82 -36.2%

Source: eTrading

Key Assumptions

Y/E December 2009 2010 2011F 2012F 2013F

CPO Prices (benchmark) 6,694 7,804 7,981 8,140 8,303

FFB Yield 64,395 67,897 93,920 134,854 187,383

Rubber Prices (benchmark) 19,424 32,144 38,887 31,280 29,802

Rubber Yield 6,444 6,325 6,599 7,337 8,681

Peer Comparisons

Ticker Market Cap EPS 12F PE 12F ROE ROA EV/EBITDA

JAWA 1,415,507 53 7.08 26.29% 8.57% 6.82

LSIP 14,839,730 232.62 9.24 24.70% 19.86% 5.98

SGRO 5,622,750 315.91 9.34 23.18% 17.58% 4.73

BWPT 4,925,242 102.25 11.64 23.95% 11.39% 10.48

GZCO 1,500,000 37.56 7.85 14.35% 7.87% 9.11TBLA 2,940,101 113.89 5.44 23.12% 7.66% 4.95

Average 9,052,590 8.43 23.66% 13.94% 7.13

Source: Bloomber, eTrading

Our View

We are bullish on rubber and CPO, the two main crops grow by JAWA. Its simple really: demand will

outpace supply in the long run. Deficit will drive up price. Another key point is JAWA had their foot wet

already by owning quite a large area of rubber plantation when rubber price hit their peak this year.

Bluntly speaking, they didnt miss the boat like some others did. Thus based on their growth profile and

rubber concentrated plantation, providing a double multiplier effect during the commodities price

hike, we call JAWA a Buy with target price Rp.600; a 48.1% upside from current price. Valuation is based

i bk


14/15

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JAWA.IJ Buy - TP: 600

Company Update

op or bottom. Use the Text Box Tools tab to

p or bottom. Use the Text Box Tools tab to

PT Jaya Agra Wattie Tbk October 31 2011


15/15


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pleteness of the information. All opinions and estimates included in this report constitute our judgments as of this date, without regards to its fairness, and are subject to change

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This document is not an offer to sell or a solicitation to buy any securities. This firms and its affiliates and their officers and employees may have a position, make markets, act as

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tioned herein, and may have acted upon or used any of the recommendations herein before they have been provided to you. PT eTrading Securities 2011.

jawa ij - rubber does it buy 600

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