Indofood Agri Resources

DBS Group Research, July 29

Q2 2014 earnings in line on annualised basis: Excluding translational foreign exchange losses of 91.5 billion rupiah (S$9.78 million), IndoAgri (IFAR) booked Q2 2014 core earnings of Rp316 billion (+377 per cent y-o-y; +228 per cent q-o-q ) - representing 25 per cent of our full year forecast (ex translational foreign exchange gains/losses).

On a pretax level, H1 2014 results represented only 32 per cent of our full year forecast versus 41 per cent historical average) - given the poor Q1 2014 performance.

Despite strong sequential recovery in Q2 2014 edible oils and fats contribution, overall performance was dragged by 22 per cent q-o-q jump in G&A expenses, sequentially lower CPO ASP (average selling price); and a jump in tax rate to 34 per cent from 26 per cent in Q2 2014.

Higher contribution from edible oil and fats division: The group omitted disclosure of segmental Ebitda in its results announcement, but Q2 2014 plantations revenue recorded a 4 per cent sequential decline (+21 per cent y-o-y) to Rp2,332 billion; we suspect marginally higher volumes were offset by lower ASP.

On the other hand, edible oils and fats revenue rebounded sequentially by 28 per cent (+32 per cent y-o-y), as Q2 2014 benefited from the full impact of the about 6 per cent hike in cooking oil and margarine ASPs since April 2014 and the delivery of inventory backlogs in the previous quarter.

Expanding debt, but balance sheet still strong. Net debt to total equity ratio stood at 27 per cent at end of June 2014, up from 25 per cent at end March 2014, on higher debt. IndoAgri had spent about Rp1.5 trillion on capex in H1 2014 vs. our forecast of Rp2.2 trillion for the full year. This excludes announced acquisition of 3.8k ha of sugarcane estates for Rp227billion in July 2014.

Our view: Boost from Q3 2014 earnings may be inadequate to meet our earnings expectations. We expect seasonal contribution from its sugar division to drive IndoAgri's Q3 2014 earnings, in addition to peak harvesting season for palm oil. But, with ramp-up in fertiliser costs and dry conditions re-appearing in East Sumatra, H2 2014 earnings may not meet our current expectations.

Recommendation: Near-term recovery priced in. Our "hold" rating stays for now, pending further analysis and review of our CPO price forecasts. We do not expect a significant recovery in IFAR's share price, given the bearish outlook on near term soya bean prices. We believe the counter has priced in this year's prospective jump in earnings.

HOLD

Indofood Agri Resources

UOBKayhian on 9 June 2014

FY14F PE (x): 11.1
FY15F PE (x): 11.1
Production recovery post biological tree stress. Indofood Agri Resources’ (IFAR) FFB
and CPO production are expected to register a robust 3-year CAGR of 7% and 8% for
2013-16 to 3.59m tonnes and 1.01m tonnes respectively. The stellar CPO production
growth is mainly due to: a) high newly-mature area of 15,041ha, thanks to aggressive
new planting in 2010 (accounting for 8.2% of 2014 mature plantation), and b) FFB yield
recovery post biological tree stress to 17.1x in 2014 from 16.3x in 2013. Maintain
HOLD with a target price of S$1.01, based on SOTP valuation after implementing a
holding company discount of 25%. Entry price is S$0.78, based on -1SD to its 5-year
mean PE.

Indofood Agri Resources

UOBKayhian on 3 Mar 2014

FY14F PE (x): 22.9
FY15F PE (x): 13.8
Results were within our expectation. Indofood Agri Resources (IFAR) reported net profit
excluding biological asset gain of Rp208.6b (+69.8% qoq, +37.3% yoy) for 4Q13 and
Rp504.2b (-51.5% yoy) for 2013. Maintain HOLD and target price of S$1.00, based on
SOTP valuation and after a holding company discount of 25%. Entry price is S$0.85.

Indofood Agri Resources

UOBKayhian on 31 Oct 2013

(IFAR SP/HOLD/S$0.89/Target: S$0.90)
FY13F PE (x): 21.7
FY14F PE (x): 13.7

Weak ASP and higher costs dragged net profit in 9M13. Indofood Agri Resources (IFAR) reported a 66.7% yoy decline in net profit to Rp296b in 9M13. This was due to: a) lower CPO ASP (-12.2% yoy), b) lower edible oils & fats sales volume (-3.9% yoy) but offset by higher sugar sales volume (+14% yoy) and a slight increase in CPO sales volume, c) higher production cost, d) forex loss of Rp93b in 9M13 (9M12: gain of Rp17b), and e) higher corporate tax rate. Net profit was below our and consensus forecasts.

Maintain HOLD and target price of S$0.90, or 13.7x 2014F PE, based on SOTP valuation and after a holding company discount of 25%. Entry price is S$0.75

Plantation Stocks

CIMB Research on 7 Mar 2013

THE key takeaways for us from the Palm Oil Conference are that the crude palm oil (CPO) price could decline in H2 due to a potential record soyabean harvest from South America and the United States, plus higher palm oil supplies and slowing biodiesel demand growth.

However, the current attractive CPO price against crude oil suggests that there is potential for the excess supply today to be diverted to voluntary biodiesel usage to reduce the current stock. A lower CPO price will be negative for pure palm oil players.

We maintain our "neutral" call, and preference for integrated players like Wilmar and Indofood Agri.

NEUTRAL

Regional Plantations

CIMB Research on 8 March 2012

THE main takeaway from the Palm Oil Conference is the speakers' upbeat take on the near-term prospects for crude palm oil (CPO) prices. Most of the experts expect spot prices to head higher in the near term and peak in Q2 before retracing in H2 2012.

Given that plantation stocks tend to track CPO price, plantation stocks are set to outperform in the near term if CPO prices do rally in Q2. We maintain our 'trading buy' call on the sector given our short-term bullish view on CPO price. Our top picks are BW Plantations, Indofood Agri and Sime Darby.


During the conference, seven speakers provided their views on CPO price. The price bands for 2012 spanned RM2,590 to RM4,000 ($1,078 to $1,665) per tonne, and the mean of the average price forecast worked out to around RM3,129, lower than last year's RM3,219. Most of the presenters held the view that prices could head higher in the near term and peak in Q2 before trending down in the later part of 2012.

Our average CPO price forecast of RM2,970 appears conservative compared to the mean. We are surprised that some of the speakers expect biodiesel mandates/subsidies to be intact, growth of palm oil supply from Indonesia to be lower and crude oil prices to be higher than our forecast of US$110 per barrel.

We do not discount the possibility of CPO price reaching the RM4,000 projected by some experts as it could transpire if soybean crop damage is worse than expected, CPO output is lower and crude oil price is higher.
But we continue to hold the view that the high CPO price is unlikely to be sustained for long, as it may lead to inflationary pressure and may prompt governments to tighten monetary policies or roll back biodiesel subsidies to avoid social unrest.

We maintain our 'trading buy' call on regional planters and preference for Indonesian planters. We like the Indonesian (BW Plantations, London Sumatra, SIMP, Sampoerna Agro) and Singapore planters (Indofood Agri) for their more attractive valuations. In Malaysia, we like Sime Darby and Hap Seng Plantations. 
Sector - TRADING BUY

Indofood Agri Resources

Kim Eng on 1 Mar 2012

Indofood Agri Resources (IFAR SP) – Steady core growth
Previous day closing price: $1.615
Recommendation – HOLD (maintained)
Target price – $1.53 (maintained)

FY11 in line. Indofood Agri’s (IFAR) FY11’s numbers were in line with expectations. It recorded a net profit of Rp.1,489b. Headline 6.3% net profit growth was unexciting due to the reduced stake following PT SIMP’s listing. Operating numbers, however were impressive. Looking ahead, FY12 earnings will be driven by higher CPO prices, a progressive output rise from maturing estates, and growing sugar contributions. However, we believe that its prospects have been factored into IFAR’s price, and we retain our Hold recommendation.

An excellent year. IFAR recorded a 33% growth in revenue to Rp. 12,605b which drove a 26% rise in operating profit. However, final net profit growth of 6% was diluted by a higher level of minority interests due to the lower stake in PT SIMP following the subsidiary’s listing on the Jakarta stock exchange in May 2011. IFAR also recorded a lower non-cash biological gain in FY11 versus FY10. Margins were lower due to greater downstream sales, but these still drove profits higher. Sugar, however, recorded a small operating loss, while in its start-up phase.

Growth across the board. For FY12 we expect IFAR’s increased CPO output from maturing plantations to trickle down, and drive the bottom line. We estimate CPO output to grow by 7% (within management’s guidance) and a modest pickup in CPO prices, due to an expected shortfall in substitutes such as soy. However, fertilizer costs are moving up, and downstream margins may be clipped by an increase of cooking oil from producers incentivized to move downstream due to Indonesia’s export taxes. Sugar will start meaningful contributions in the current year, with the completion of its milling and refining facilities, but is still relatively small versus IFAR’s mainstay palm products.

Fully valued. On balance, we therefore expect a steady 10% improvement in FY12 core net profit. Current PER multiples of its main operating subsidiary PT SIMP is trading in lin with market peers, and the derived SOTP valuation from this indicates that IFAR is fully valued, near our target price of $1.53. We therefore maintain our Hold rating.