KI: TBLA - Company Update - Tapping into sugar to transform business

Tunas Baru Lampung (TBLA) - Not Rated

Tapping into sugar to transform business



We went on a one-day visit to TBLA’s palm oil estates in Lampung. Some key takeaways from our visit are: a) TBLA will reap benefit from the upcoming sugar mill with capacity 800 MT/day in the next two years; b) TBLA’s attempt to convert its 7000 ha old mature oil palm in Lampung into sugarcane estate in the next two years; c) upcoming enlargement of palm cooking oil and other CPO’s derivative refinery with capacity of 1000MT/day for each in Lampung and Surabaya, which will be completed by 4Q14 and 3Q15 respectively; d) expanding CPO mills in Bengkulu to 60 MT/hour from 45MT/hour, estimated completion by 3Q15; e) upcoming biodiesel refinery that will be commencing at 2016.



Aiming to be Indonesian first-listed integrated sugar company

Tunas Baru Lampung (TBLA) focuses on become the first-listed company that engages in integrated sugar business. We believe that today’s sugar business in Indonesia is quite promising since it has a deep gap between demand and supply side. Indonesia as the 4th most populated country is expected to consume 5.7 mn MT sugar this year while the domestic production remains hovering at 2.5-2.9 mn MT, translating to imports amounting to about half of our consumption. TBLA’s sugar refinery business, which was commissioning by the end of the last year, is now fully operating. It processes imported raw sugar (brown sugar) into refined sugar. However, Oil palm products will still be the main revenue driver for the company while sugar will become a major revenue contributor in the next three years.



Starting sugar business from the upstream business for higher margin

Aiming for higher profit, TBLA is set to develop its sugar business with material sourced from its own sugarcane estates. TBLA dedicates 4,500 ha sugarcane estates for this year that comprise 2500 ha nucleus area and 2000 ha from long-leased land from local cooperative. TBLA is to add 7,000-8,000 ha gradually until 2016 by converting existing old CPO estates to sugar cane plantation.



Sugar mill development will be started by this month

TBLA will invest US$103 mn to build a sugar mill. The company’s affiliation, PT Adikarya Gemilang had appointed Sharkara International, an affiliate of Thailand's Sutech Engineering Co Ltd as the main contractor for the mill. The contract with Sharkara is worth US$35 mn, It will also spend another US$68 mn on other contractors. It is going to be commissioned by 4Q16.



CPO production upbeat

TBLA is upbeat for 50% rise in CPO output this year despite occurrence of El-Nino. TBLA’s 1H14 production went up by 60% yoy to 139k MT from 87k MT on the back of rising fresh fruit bunch yield (FFB) to 8.9 MT/ha from 6.1 MT/ha (+16% yoy) Management expects FFB yield to improve to 20 MT/ha on the back of better age profile and supported by 30% of its plantation being in the young-mature and prime-mature age this year. Reinforced by sugar refinery business that currently in full throttle, management believe to deliver more than Rp425 bn in bottom line (+390% yoy).

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*Ciptadana Research Department