XXXXX

Xxx
Xxxx
xxxx
Palm Plantation Sector
Indonesia CPO Exchange and Carbon Trading – Remains Cautious on NEUTRAL
Declining Prices
XXXXX

SECTOR
UPDATE

THE INDONESIAN CPO EXCHANGE AS THE NEW GLOBAL PRICE REFEERENCE. The Indonesian CPO exchange will determine the
export benchmark price (HPE) which is the basis for calculating Export Duty (BK) and Export Levy rates. Being the major CPO
producer globally, it is hoped that the Indonesian CPO exchange will be the global CPO reference price. The government expects
greater state income from the sector. On the other hand, the Indonesian CPO exchange can maintain the stability of CPO export
prices, which will provide benefits for CPO producers with mainly export sales in maintaining their profitability level.
PALM PLANTATION TO BENEFITS FROM CARBON TRADING. Palm plantation companies may enjoy the benefit from carbon
trading by selling their carbon credits to earn extra revenue. Each hectare of palm plantations can absorb 64 tons of carbon
dioxide a year. By having a total of 15.3 million hectare of palm plantation, Indonesia has the potential to absorb 979.4 million
tons of CO2. We estimate that PT Astra Agro Lestari Tbk (AALI) with the largest palm plantation area will benefit the most from
carbon trading with the ability to absorb 18.4 million tons of carbon a year .
NEUTRAL RATING FOR SECTORS. We put a neutral rating for the palm plantation sector due to the declining CPO price
performance and limited opportunity to drive price higher. However, amongst our palm plantation stock universe, we favor
DSNG (BUY/TP: Rp800 /share, +31.1% upside) due to its exceptional ESG and sustainability marked by positioned 12th in the
SPOTT ranking and being the first Indonesian agroforestry company in the last 30 years to receive financing facility from ADB.
XXXX
DISCLAIMER:
This report is issued by PT Henan Putihrai Sekuritas, a member of the Indonesia Stock Exchanges (IDX) and registered and supervised by the Financial Services Authority (OJK). This
report and any electronic access hereto are restricted and intended solely for the clients and related entities and the use of the intended recipient it is addressed of PT Henan Putihrai
Sekuritas.
This report may contain confidential and/or legally privileged information. It is not reproduced, copied, or made available for others. Under no circumstances is it considered as a
selling offer or solicitation of securities buying. Any recommendation contained herein may not be suitable for all investors . In considering any investments you should make your
own independent assessment and seek your own professional financial and legal advice. Although the information hereof is obtained from reliable sources, its accuracy and
completeness cannot be guaranteed. PT Henan Putihrai Sekuritas specifically disclaims all liability for any direct, indirect, consequential or other losses or damages including loss of
profits incurred by you or any third party that may arise from any reliance on this report or for the reliability, accuracy, completeness or timeliness thereof.
If you are not the intended recipient or have received this communication in error, please notify us immediately. If you are not the intended recipie nt, any use of, reliance on,
reference to, disclosure of, alteration to or copying and/or distribution of the information contained in report, for any purpose is strictly prohibited and may be unlawful. PT Henan
Putihrai Sekuritas shall not be liable for any loss and/or damage caused by viruses transmitted by this report or its attachments nor for the proper and complete transmission of the
information contained in this communication nor for any delay in its receipt. All rights reserved by PT Henan Putihrai Sekuritas. For further information please contact number (+62
21) 2525 888.

HP Sekuritas – hpfinancials.co.id 1
 SECTOR UPDATE
RESEARCH 10-Oct-2023

THE INDONESIAN CPO EXCHANGE AS THE NEW GLOBAL PRICE REFEERENCE. The Ministry of Trade and Commodities and Futures Trading
Regulatory Agency (Bappebti) are currently conducting a regulatory study for the Indonesian CPO exchange. This will be a new reference
price for Indonesian CPO export trade, which was referred to Malaysian CPO exchange price. The Indonesian CPO exchange will determine
the export benchmark price (HPE) which is the basis for calculating Export Duty (BK) and Export Levy rates. As of September 2023, Indonesia
produces 59.1% of the world's CPO while Malaysia only 23.9%. Being the major CPO producer globally, it is hoped that the Indonesian CPO
exchange will be the global CPO reference price. In addition, the Indonesian CPO exchange can provide an independent and transparent
CPO prices based on supply and demand conditions for exporters. Thus, the government expects greater state income from the sector. On
the other hand, the Indonesian CPO exchange can maintain the stability of CPO export prices, which will provide benefits for CPO producers
with mainly export sales in maintaining their profitability level. However, we are of the view that the CPO exchange will not have a significant
impact on CPO producers with mainly domestic sales.

PALM PLANTATION TO BENEFITS FROM CARBON TRADING. Carbon trading allows companies with the excess amount of carbon produced
from its cap to purchase carbon credits from others producing less. Palm plantation companies may enjoy the benefit from carbon trading
by selling their carbon credits to earn extra revenue. Besides producing 18 mt of oxygen a year, each hectare of palm plantations can absorb
64 mt of carbon dioxide a year. As of 2023, Indonesia as the world largest CPO producer have a total of 15.3 mn hectare of palm plantation.
Thus, its palm plantation has the potential to absorb 979.4 mn mt of CO2. We also estimate that PT Astra Agro Lestari Tbk (AALI) with the
largest palm plantation area will benefit the most from carbon trading with the ability to absorb 18.4 mn tons of carbon a year.

CPO PRICE DECLINE DRIVEN BY HIGHER EDIBLE OIL PRODUCTION. The global CPO price has declined 11.5% year-to-date to MYR 3,600 /mt
due to an oversupply. In July 2023, Indonesia produced 4.8 mn mt of CPO, grew 7.9% MoM. On the other hand, the domestic consumption
and export volume declined by 2.5% MoM. We continue to expect a further improvement in the rest of the second half of 2023 before the
El Nino will likely affect the output in 2024. Historically, Indonesia and Malaysia peak production volume is in October and November,
respectively. In addition, the global edible oil production has risen by 1.5% YoY to 222.8 mt which is reflected by the falling edible oil prices.

NEUTRAL RATING FOR SECTORS. We put a neutral rating for the palm plantation sector due to the declining CPO price performance and
limited opportunity to drive price higher. However, amongst our palm plantation stock universe, we favor DSNG (BUY/TP: Rp800 /share,
+31.1% upside) due to its exceptional ESG and sustainability marked by positioned 12th in the SPOTT ranking and being the first Indonesian
agroforestry company in the last 30 years to receive financing facility from ADB.

Exhibit 1
1H23 Financial and Operational Ratios
TAPG DSNG STAA AALI LSIP
Total planted area ('000 ha) 160.2 112.5 49.6 287.0 123.7
EV/Total planted area (Rp mn/ha) 74.6 101.1 205.8 58.4 27.7
EBITDA/Total planted area (Rp mn/ha) 4.1 9.2 10.2 2.6 5.3
Estimated total CO2 absorption ('000 tons) 10.3 7.2 3.2 18.4 7.9
Matured Planted area ('000 ha) 151.6 106.0 45.7 265.2 84.7
Net Profit/ Matured planted Area (Rp mn/ha) 3.1 3.4 4.8 1.4 2.0
EBITDA/Matured planted area (Rp mn/ha) 4.3 9.8 11.1 2.8 7.7
EBITDA margin 17.2% 23.8% 17.4% 10.3% 15.8%
ROE 4.8% 4.5% 5.5% 1.7% 1.6%
Net Profit Margin 12.5% 8.3% 9.4% 3.9% 8.8%
Asset Turnover 27.5% 27.3% 36.4% 32.1% 15.0%
Financial Leverage 140.8% 197.9% 160.3% 136.1% 116.6%
EV/EBITDA 9.2 5.5 10.1 11.4 2.6

Extraction rate (%)

CPO 22.9% 22.6% 21.7% 18.5% 21.6%
PK 4.8% 4.1% 4.7% 3.9% 6.3%
PKO 1.4% -
FFB Yield (ton/ha) 25.7 25.4 19.8 15.9 12.2
Average Age 12.7 13.8 13.0 15.1 19.0
Sources: TAPG, DSNG, STAA, AALI, LSIP, HP Analytics

Analysts:
Alroy Soeparto
alroy.soeparto@henanputihrai.com
(+62 21) 3970 6464

HP Sekuritas – hpfinancials.co.id 2
 SECTOR UPDATE
RESEARCH 10-Oct-2023

Stock Pick: Dharma Satya Nusantara (DSNG)

MAIN REVENUE CONTRIBUTOR, PALM SEGMENT GREW 28.8% YoY. Having a prime age palm trees of 14.5 years with growing productivity, in 1H23 DSNG
managed to produce 304.3 thousand tons of CPO, grew 22.6% YoY. Assisted by stable CPO ASP at IDR11,833 thousand/ton, its revenue grew 15.1% YoY to IDR
4.3 trillion. On a quarterly basis, DSNG maintained its revenue growth by 10.9% QoQ to IDR2.3 trillion despite declining CPO ASP by 2.2% QoQ with stable CPO
production volume of 152.3 thousand tons. Its Palm segment Revenue grew 28.2% YoY in 1H23 and contributed 88.4% to DSNG’s consolidated Revenue, while
the rest was contributed by its wood segment.
ADVANCING SUSTAINABILITY PRACTICES. Besides utilizing palm shell and empty bunches waste for biomass, DSNG have built two Bio-CNG plants to replace
its diesel fuel needs to power processing plants and on-site trucks. DSNG have saved 2 million liters of diesel fuel each year, equivalent to over 50 thousand
metric tons of carbon reduction. Therefore, in 2022 DSNG was awarded SPOTT scoring of 86.4% and ranked 12th amongst palm plantation companies
worldwide. Through this recognition DSNG able to raise USD 15 million from Asian Development Bank (ADB), the first agroforestry company to receive fund
in the last 30 years. In addition, with sustainability practices recognition from global institutions, DSNG can price its CPO with premium. In regard to its
possibility to participate in carbon trading, with a total of 112.5 thousand hectare of palm plantation DSNG has the potential to absorb 7,200 tons of CO2
emission which then can be sold as carbon credit.

MAINTAINING BUY AND TARGET PRICE. We maintain our BUY rating and Target Price of IDR 800 /share (+31.1% upside), implying 4.0x of FY23F EV/EBITDA.
We have not seen the El Nino effect take place at the current to drive up CPO prices. Yet, we estimate that the effect may start in 2024.

Exhibit 2
DSNG Financial Performance and Forecast (Rp billion)
INCOME STATEMENT 2021 2022 2023F 2024F 2025F
Revenue 7,124 9,634 9,838 10,645 11,507
Gross profit 2,025 3,118 3,215 3,444 3,686
S&M expns (357) (452) (457) (489) (523)
G&A expns (374) (431) (436) (467) (500)
Income from operation 1,371 2,144 2,234 2,400 2,575
Other income (expns) 22 28 28 30 32
EBIT 1,393 2,172 2,262 2,430 2,608
Finance expns (442) (578) (583) (589) (595)
Finance income 15 15 15 16 16
EBT 966 1,610 1,694 1,857 2,029
Earnings after tax 740 1,207 1,274 1,400 1,535
Net profit 727 1,207 1,274 1,401 1,536
EBITDA 1,983 2,880 3,006 3,211 3,427
Current Price 610 610 610 610 610
EV/EBITDA 5.3 3.7 3.4 2.9 2.5
P/E 8.9 5.4 5.1 4.6 4.2
PBV 0.94 0.80 0.72 0.64 0.58
Dividend Yield 2.0% 3.3% 4.9% 5.3% 5.9%
Mkt cap 6,466 6,466 6,466 6,466 6,466
Target Price 800 800 800 800 800
EV/EBITDA 6.3 4.4 4.0 3.6 3.1
P/E 11.7 7.0 6.7 6.1 5.5
PBV 1.23 1.06 0.94 0.84 0.75
Dividend Yield 1.5% 2.5% 3.7% 4.0% 4.5%
Mkt cap 8,480 8,480 8,480 8,480 8,480
Sources: DSNG, HP Analytics

HP Sekuritas – hpfinancials.co.id 3
 SECTOR UPDATE
RESEARCH 10-Oct-2023

Exhibit: Palm Plantation and CPO Performance

Exhibit 3 Exhibit 4
2010 – 2023 Total Palm Planted Area (‘000 ha) 2010 – 2023 CPO Domestic Consumption (‘000 tons)

16,000
15,303 20,000 18,936
17,500
14,000 12,358
15,000
12,000 12,500
10,000 10,000
8,000 7,500
5,000
6,000
2,500
4,000 -

Matured Total
Sources: DITJENBUN, HP Analytics
Sources: DITJENBUN, HP Analytics
Exhibit 6
Exhibit 5
Soybean oil Price Showing Bearish Trend (USD/lb)
CPO Price Showing Bearish Trend (MYR/mt)

100
8000

7000 80

6000 60
5000
40
4000
20
3000

2000 0

Sources: Bloomberg, HP Analytics Sources: Bloomberg, HP Analytics

Exhibit 7 Exhibit 8
Rapeseed Oil Price Showing Bearish Trend (EUR/mt) Sunflower Oil Price Showing Bearish Trend (USD/t)

1200 2500

1000 2000

800
1500
600
1000
400
500
200

0 0

Sources: Bloomberg, HP Analytics Sources: Bloomberg, HP Analytics

HP Sekuritas – hpfinancials.co.id 4
 SECTOR UPDATE
RESEARCH 10-Oct-2023

Exhibit: Palm Plantation and CPO Performance

Exhibit 9 Exhibit 10
DSNG CPO Production (‘000 tons) and Oil Extraction Rate STAA CPO Production (‘000 tons) and Oil Extraction Rate
53.9% 60.0%
23.5% 23.5% 25.0% 47.6%
850 23.0% 22.8% 450 50.0%
22.6% 417 41.0%
750 403
38.9%
39.4%40.0%
637 639 402
610 20.0%
650 400 381
544 30.0%
550
15.0% 20.0%
450 350
350 304 10.0%
250 10.0% 300 0.0%
2019 2020 2021 2022 1H23 2019 2020 2021 2022 1H23

CPO Production ('000 tons) OER CPO Production ('000 tons) OER

Sources: DSNG, HP Analytics Sources: TAPG, HP Analytics

Exhibit 11 Exhibit 12
TAPG CPO Production (‘000 tons) and Oil Extraction Rate CPO contributes 36% of global edible oil production

1,300 23.4% 25.0%

23.1% 23.0% 22.6% 22.9%
1,100 999
846 841 850 20.0%
900

700
15.0%
445
500

300 10.0%
2019 2020 2021 2022 1H23

CPO Production ('000 tons) OER

Sources: TAPG, HP Analytics Sources: USDA, HP Analytics

HP Sekuritas – hpfinancials.co.id 5
 SECTOR UPDATE
RESEARCH 10-Oct-2023

XXXX
Rating Scale
BUY : We expect the stock’s total return to exceed + 10% over the next 12 months.
HOLD : We expect the stock’s total return to fall between - 10 % and + 10% over the next 12 months.
SELL : We expect the stock’s total return to fall below - 10% over the next 12 months.
NOT RATED : We are not assigning any rating or price target to the stock.
OVERWEIGHT : Fundamentals are improving.
NEUTRAL : Fundamentals are steady.
UNDERWEIGHT : Fundamentals are worsening.
XXXX
Xxx
Xxx
xxxx

PT Henan Putihrai Sekuritas

Sahid Sudirman Center Lt. 46
Jl. Jenderal Sudirman No. 86 Jakarta 10220
Phone : (021) 39706464
Fax : (021) 39706797

Customer Service
(021) 2525 888
0888 2525 888

hpfinancials.co.id

XXXxx
Xxxxx
xxxxx
Surabaya Bandung
Lobby @ Sheraton Hotel Menara Asia Afrika Lt 11
Jln. Embong Malang 25 – 31 Jl. Asia Afrika No. 133-137
Surabaya 60261 Bandung 40112
P (031) 534 3838 P (022) 423 4050
F (031) 534 8686 F (022) 423 9330
XXX
Xxxxx
xxxxxx
Terdaftar dan diawasi oleh

XXXxx

HP Sekuritas – hpfinancials.co.id 6