Indofood Agri Resources (IFAR SP) - DBS Research 2017-07-28: Y-o-y Earnings Recovery Priced In

Indofood Agri Resources (IFAR SP) - DBS Vickers 2017-07-28: Y-o-y Earnings Recovery Priced In INDOFOOD AGRI RESOURCES LTD. 5JS.SI

Indofood Agri Resources (IFAR SP) - Y-o-y Earnings Recovery Priced In

  • 2Q17 reported earnings broadly in line with our FY17 forecast Lower CPO and PKO q-o-q price trend dragged earnings 
  • Expecting milder CPO output in 2H17 
  • Maintain HOLD rating with Target Price of S$0.49 



What’s New 


2Q17 earnings broadly in line with our estimate. 

  • IFAR booked reported earnings of Rp99.3bn (+232.2% y-o-y, - 42% q-o-q). Excluding the biological asset gain/losses, 2Q17 net profit after tax reached Rp127.6bn (five-fold y-o-y thanks to a low base, -40% q-o-q). 
  • The adjusted net profit after tax in 1H17 reached Rp333.7bn, which represents 50% of our FY17 forecast; in line.

Revenue also met our forecast. 

  • IFAR posted 2Q17 revenue of Rp4.1tr (+15.4% y-o-y, -6.4% q-o-q), in line with our FY17 forecast and consensus. IFAR booked lower q-o-q ASP for CPO and PKO of Rp8,093/kg (flat y-o-y, -8% q-o-q) and Rp5,845/kg (-13% y-o-y, -34% q-o-q), following the lower benchmark price for both products. 
  • IFAR’s 2Q17 revenue trend represents its overall operational performance, mainly in the production of its palm oil-related product during the period. Y-o-y overall acceleration in the production of nucleus Fresh Fruits Bunches (FFB) and CPO was driven by stable yield y-o-y and additional maturing trees totalling 14.2k hectares.
  • IFAR’s 2Q17 own estate (nucleus) FFB production reached 698k tons (+11% y-o-y, -6% q-o-q), which is in line with our estimate. A similar production pattern also occurred for external estates’ fruits purchase and affected IFAR’s total CPO output. CPO and PKO output reached 185k tons (+11% y-o-y, -11% q-o-q) and 44k tons (+10% y-o-y, -14% q-o-q), respectively, which also broadly in line with our forecast.


Outlook 


We have left our forecast unchanged at this point. 

  • We have maintained our FY17/18 earnings forecast, given the fact that 1H17 overall earnings performance is still on track to meet our full-year forecast. 
  • We have taken into account the weaker y-o-y CPO and PKO price in FY18 and a softer expansion in tree productivity in 2H17.

Improving earnings outlook this year priced in. 

  • We expect the group’s FY17 earnings to recover meaningfully – thanks to an anticipated recovery in FFB yields, maturing estates and relatively stable palm oil prices. However, its earnings seem to be peaking this year and the market appears to have priced in the outlook for lower earnings going forward.
  • In this report, we reiterate our HOLD rating on the stock with a new TP of S$0.49.


Valuation

  • We have maintained our DCF-based TP (FY18F base year) of S$0.49/share, with WACC and terminal growth rate assumption of 11.6% and 3%, respectively.
  • Our target price implies 3% share price upside potential; maintain HOLD.




William Simadiputra DBS Vickers | http://www.dbsvickers.com/ 2017-07-28
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.49 Down 0.560



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