Low tide
- Indofood Agri (IndoAgri) booked paltry earnings of Rp2bn in 2Q15 amidst lower ASP, higher labour costs, FX losses and associates losses.
- FY15F FFB output guided at 3.4m MT; new planting remains on track for 5k-8k ha in 2H15.
- FY15F/16F earnings cut by 51%/35%; TP cut to S$0.56.
- No near term catalysts, despite forecast of double digit growth earnings (from low base); maintain HOLD.
Disappointing quarter.
- 2Q15 earnings plunged 99% q-o-q to just Rp2bn (-94% q-o-q).
- Earnings were dragged by 12% y-o-y drop in CPO ASP, Rp44bn in FX losses, and 12% y-o-y higher minimum wages and losses from its joint venture in CMAA (on weaker than expected sugar prices).
- This brought 1H15 earnings to Rp37bn (-91% y-o-y) – representing only c.5% of our initial full year target.
- Booked 2Q15 CPO ASP was in line with Astra Agro’s benchmark for the quarter but was c.US$14/MT below spot.
- We understand current prices have partly priced in the B15 export levy.
Uneven weather conditions.
- The group guided FY15 FFB output of 3.4m MT (< 5% y-o-y) – with 2H15 production representing roughly 56% of full year projections.
- The y-o-y FFB production growth was mainly driven by output expansion from its South Sumatra estates, offset by a decline in North Sumatra.
- We understand rainfall in South Sumatra has been below average in 2Q15; there was lower rainfall in Riau and Central Kalimantan over the past month – although yields remained unaffected.
- IndoAgri expanded by 973 ha in 1H15, but is guiding 5k-8k ha full year target given significant land compensation/clearing YTD.
FY15F/16F earnings cut by 51%/35%.
- Imputing 2Q15 results, we cut FY15F CPO ASP by 5% (resulting in lower downstream product prices), but raised PK ASP by 4% from previous forecasts.
- FY15F sugar prices are likewise cut 19% to US$300/MT (based on World Bank outlook). Imputing this, we now expect CMAA to record losses this year and next (from profits previously).
- Upkeep and harvesting costs are likewise raised by 3% (on higher labour cost assumption), while tax rate is nudged up to reflect charges YTD.
- All-in, FY15F and FY16F earnings were cut by 51% and 35%, respectively.
- Excluding 44%-owned Lonsum, IndoAgri is hence forecast to earn Rp71bn this year and Rp78bn next year.
No near term catalysts.
- We cut our DCF estimate by 19% to S$0.56 and maintain our HOLD rating.
- We continue to expect 7% CAGR in own FFB output through FY18F (despite its relatively large size) and better refining margins from B15 programme.
Analyst: Ben SANTOSO
Source: http://www.dbsvickers.com/
