Indofood Agri Resources (IFAR SP) - DBS Research 2017-05-02: Guiding For higher Volume Growth

Indofood Agri Resources (IFAR SP) - DBS Vickers 2017-05-02: Guiding for higher volume growth INDOFOOD AGRI RESOURCES LTD. 5JS.SI

Indofood Agri Resources (IFAR SP) - Guiding for higher volume growth

  • Excluding biological asset gains (losses) 1Q17 core PAT of Rp376bn was in line with our expectation on annualised basis.
  • Strong performance was driven by both higher CPO and PK volume and ASP, offset by drop in Edible Oil & Fats contribution.
  • No changes in earnings forecasts and TP. Maintain HOLD.



Highlights 


1Q17 underlying PAT in line with expectations 

  • Excluding fair value changes on biological assets (Rp47bn gain), IndoAgri booked 1Q17 PAT (before non-controlling interests) of Rp376bn – representing 25% of our full-year expectations vs. 25% historical average.
  • Reported PATMI came in at Rp171bn (+80% y-o-y; - 23% q-o-q). The performance was principally driven by higher crude palm oil (CPO), palm kernel (PK), and rubber revenues – offset by decline in that of sugar.
  • The group booked 1Q17 CPO sales volume of 227,000 MT (6% y-o-y, -5% q-o-q). This lagged 12% y-o-y recovery in CPO production – hence indicating inventory buildup. The group’s realised ASP for both CPO and PKO remained strong; rising by 35% y-o-y (+9% q-o-q) to Rp8,816/kg and 90% y-o-y (+19% q-o-q) to Rp8,796/kg, respectively during the quarter.
  • 1Q17 Edible Oils & Fats revenue expanded 29% y-o-y (8% q-o-q) to Rp2,683bn. However, EBITDA from this segment dropped 48% y-o-y (-10% q-o-q) on the back of higher raw material costs – translating to EBITDA margin of 3.0% (vs. 7.5% in 1Q16 and 3.6% in 4Q16). 
  • We understand the group had two rounds of price adjustments during the quarter; raising its cooking oil price by 6% and margarine by 5%.

FFB growth guidance upgraded 

  • IndoAgri’s own FFB production reached 743,000 MT for the quarter – representing a 16% rebound y-o-y – though still 18% lower q-o-q (1Q is typically lowest quarter for output). 
  • We understand FFB yield recovery is expected to continue into 2Q17 and 3Q17 to deliver FY17F FFB growth of at least c.10% y-o-y (vis-à-vis our forecast growth rate of 12%) – guided higher from 5-10% range previously. 
  • We continue to expect 12% volume growth (unchanged), driven by both yield recovery and new maturities. 
  • In 1Q17, new maturities amounted to 5,200 ha – representing an 8% increase q-o-q.

Palm oil planted area reduced 

  • IndoAgri had reduced its oil palm planted area by 196 ha. 
  • The reduced planted area were all undertaken by subsidiary SIMP with 356 ha of oil palm being cut for replanting (net of 85 ha of new planting). Subsidiary Lonsum also had cut down 147 ha of its rubber estates and replanted them with oil palm – as part of the 160 ha additional oil palm planted area.
  • The group also added 338 ha of sugar cane plantations during 1Q17 in South Sumatra. At the same time in Brazil, the sugar cane planted area was reduced by 5,383 ha (5,270 ha of which were in third-party estates) on account of replanting in progress.

Outlook 


FY17F/18F earnings relatively unchanged 

  • We left IndoAgri’s FY17F and FY18F earnings unchanged, as we currently reviewing our CPO price forecast for a slight downside bias. 
  • Based on our current forecasts, IndoAgri’s internal EBITDA should improve slightly towards Rp3.7tr this year (from Rp3.5tr in FY16).

Valuation

  • Our DCF-based TP (FY17F base year) is unchanged at S$0.56 ((WACC 11.7%, TG 3%). Pending changes in our forecasts, our HOLD rating on the stock is unchanged. 
  • We believe any downside price movement could be a good opportunity to collect IndoAgri.




Ben Santoso DBS Vickers | http://www.dbsvickers.com/ 2017-05-02
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.560 Same 0.560



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