More Expansion Ahead

STAA currently operates 9 palm oil mills with a total capacity of 450 tph, which can accommodate twice the company's internal oil palm production (nucleus and plasma). To maximize the utilization rate of its mills, STAA purchases FFB from external parties (today, more than 50% of STAA’s CPO is made from external FFBs). The strategy, which allows STAA to be not fully dependent on its own plantations, differentiates STAA from its peers. Aside from the unique strategy, another factor boosting our optimism about STAA’s prospect is its expansion - the company is building a new palm oil refinery plant that will help generate more value from its products. This, coupled with the possibility of global CPO prices exceeding the pre-Covid levels (RM 4,000/ton) prompted us to maintain a BUY recommendation on STAA with a TP of 1,050/share, reflecting FY24F EV/ton of USD 1,570.

Entering the midstream. STAA, through its subsidiary, PT Sumber Tani Agung Oils and Fats (STAOF), is developing its own downstream palm oil industry by building a refinery plant in Dumai, which is expected to commence operations in 1H24F. In its first phase, the plant will be able to refine and fractionate 2,000 tons of palm oil/day. The plant will be supported by storage tanks that can store 64 thousand tons of refined palm oil and a 50 thousand DWT dock, making it easier for customers to stop by and purchase products from the plant. It is projected that once the plant becomes fully operational, it will help lift STAA’s NPM by up to 300 bps.

Land and infrastructure expansion will continue until 2025. STAA’s acquisition of 6,000 Ha of land at the end of last year indicates the potential for more internal production in the future. To note, most of STAA’s plants are in their prime (average: 13 years old; 74% of its plants are aged between 7-20 years old). We project the company’s internal production volume to grow by 5% yoy in FY24F and FY25F, and we don’t expect to see any significant drop in the quantity of FFB produced for at least 5 years. In addition, STAA has stated its commitment to acquire more land, with a target of 60,000 Ha in FY25F. Aside from land, STAA will continue to expand its infrastructure; the company will start the construction of two 45 tph mills in 2H23 and 1H24, respectively, bringing its total CPO production capacity to 540 tph.

BUY, TP IDR 1,050 (EV/Ton: USD 1,570). Its expansion strategy (both horizontal and vertical), coupled with the possibility of global CPO prices exceeding the pre-Covid levels (global: RM 4,000/ton, domestic: IDR 11-12 thousand/kg) prompted us to maintain a BUY recommendation on STAA with a TP of 1,050/share, reflecting FY24F EV/ton of USD 1,570 (25% higher than EV/ton average of its peers). Risks: regulatory changes, weather anomalies, and fluctuations in other vegetable oil prices.