Stripping away net biological asset loss of US$0.35m and US$1.7m one-off charge for the IPO, Kencana’s FY08 net profit was US$12.4m, or 17.0% below our forecast. 4Q08 revenues dropped 59% q-o-q due to the 43% drop in CPO prices, delay in shipment of pre-sold inventory and lower third party FFB purchases. The booked tax credit of US$3.2m in 4Q08 was due to the reversal in biological asset gains into a loss. We have cut FY09F and FY10F EPS by 1.4% and 3.7%, maintain Fully Valued.

Shipment delays in 4Q08. Kencana’s 4Q08 revenues dropped more than the 43% q-o-q drop in CPO prices, as there were delays in shipment of some 5,000 MT of CPO. Moreover, CPO volume of 66,017 MT was significantly lower than our forecast of 82,636 MT, as we suspect there were far less FFB purchases from third parties in 4Q08. Excluding biological asset loss, Kencana’s operating profit jumped by 106.3% q-o-q, partly because realised trading gains of US$0.3m was booked in COGS.

Expansion slowed down. As at the end of 2008, Kencana’s planted area totaled 33,428 ha, of which 8,338 ha were smallholders. Kencana expanded 2,482 ha of its own estates during the year. The group plans to expand by 3,000 ha this year. Going forward, the group does not rule out buying planted estates should there be opportunities at reasonable prices.

Still in downcycle. Kencana declared final dividend of 0.3 S cents, which works out to be 18.3% payout ratio and 2.4% yield. As at end of 2008, the group had almost 95% of its debts denominated in Rupiah, which should benefit Kencana should depreciation continue. Having adjusted FY09F and FY10F EPS by 1.4% and 3.7%, respectively, we maintain our Fully Valued call and leave our TP unchanged for now.