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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
8/3/2019 Jawa Ij - Rubber Does It Buy 600
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PT. Jaya Agra Wattie Tbk.
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
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PT. Jaya Agra Wattie Tbk.
Potential Area of Rubber Proc
Source: BPKM
JAWA Plantation Locations
essing Industry
October 31, 2011
8/3/2019 Jawa Ij - Rubber Does It Buy 600
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PT. Jaya Agra Wattie Tbk.
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
8/3/2019 Jawa Ij - Rubber Does It Buy 600
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PT. Jaya Agra Wattie Tbk.
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.
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PT. Jaya Agra Wattie Tbk.
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
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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
8/3/2019 Jawa Ij - Rubber Does It Buy 600
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PT. Jaya Agra Wattie Tbk.
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
8/3/2019 Jawa Ij - Rubber Does It Buy 600
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PT. Jaya Agra Wattie Tbk.
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
8/3/2019 Jawa Ij - Rubber Does It Buy 600
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PT. Jaya Agra Wattie Tbk.
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
8/3/2019 Jawa Ij - Rubber Does It Buy 600
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PT. Jaya Agra Wattie Tbk.
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.
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PT. Jaya Agra Wattie Tbk.
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
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PT. Jaya Agra Wattie Tbk. October 31, 2011
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
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PT. Jaya Agra Wattie Tbk.
JAWA.IJ Buy - TP: 600
Company Update
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Disclaimer:
This report is prepared strictly for private circulation only to clients of PT eTrading Securities. It is purposed only to person having professional experience in matters relating to
investments. The information contained in this report has been taken from sources which we deem reliable. No warranty (express or implied) is made to the accuracy or com-
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
without notice. However, none of PT eTrading Securities (eTS) and/or its affiliated companies and/or their respective employees and/or agents makes any representation or
warranty (express or implied) or accepts any responsibility or liability as to, or in relation to, the accuracy or completeness of the information and opinions contained in this re-
port or as to any information contained in this report or any other such information or opinions remaining unchanged after the issue thereof. We expressly disclaim any respon-sibility or liability (express or implied) of eTS, its affiliated companies and their respective employees and agents whatsoever and howsoever arising (including, without limitation
for any claims, proceedings, action, suits, losses, expenses, damages or costs) which may be brought against or suffered by any person as a results of acting in reliance upon the
whole or any part of the contents of this report and neither eTS, its affiliated companies or their respective employees or agents accepts liability for any errors, omissions or
misstatements, negligent or otherwise, in the report and any liability in respect of the report or any inaccuracy therein or omission there from which might otherwise arise is
hereby expresses disclaimed.
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
principal or engage in transaction in securities or related investments of any company mentioned herein, may perform services for or solicit business from any company men-
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.