Indofood Agri Resources - CIMB Research 2015-10-29: In the red due to forex losses

Indofood Agri Resources - CIMB Research 2015-10-29: In the red due to forex losses INDOFOOD AGRI RESOURCES LTD. 5JS.SI 

Indofood Agri Resources - In the red due to forex losses 

  • IFAR’s 9M15 core net profit was in line at 63% of our full-year forecast, but below market expectations at 40% of the consensus full-year forecast. 
  • It reported a net loss for 3Q/9M15 of Rp154bn/117bn due to forex losses. 
  • We project a stronger 4Q, driven by the sale of inventories, better contribution from CMAA, and the absence of forex losses. 
  • We cut our earnings forecasts to reflect the earnings revision at 73.5%-owned SIMP. But we raise our SOP-based TP to S$0.60, as we roll over our valuations to end-17. 

Lower plantation earnings and losses from CMAA hurt 

  • 3Q15 Indofood Agri's (IFAR) 3Q15 core net profit (excluding forex loss) fell 44% yoy on weaker plantation earnings as well as losses from CMAA (its 50% sugar JV in Brazil). The 3Q15 losses of Rp43bn from CMAA was due to lower sugar prices and sales of electricity. 

Weaker rupiah led to higher forex losses 

  • The group posted a higher forex losses of Rp322bn in 3Q and Rp482bn in 9M15 arising from translation loss on its US$250m debt as rupiah weakened to Rp/US$14,657 as at 30 Sep 2015. This caused the group to post losses on its reported earnings. 
  • The good news is that the rupiah has since appreciated and the group will be able to book a Rp215bn forex gain in 4Q if the rupiah remains at the current level. 

Plantation earnings impacted by lower CPO prices 

  • 3Q15 plantation EBITDA fell 14% yoy as the higher sugar contribution (+66% yoy to Rp136bn) was not sufficient to make up for lower average selling prices for CPO (-16% yoy to Rp6,615/kg) and higher CPO stocks of 105,000 tonnes at end-Sep. 
  • Its edible oils and fats division (EOF) also posted weaker 3Q15 EBIT due to lower sales volumes, but this was partially compensated by better profit margins due to lower raw material costs. 

Current drought will negatively impact FY16 production 

  • The 2% yoy rise in 3Q15 FFB output (nucleus) was driven by higher production at its South Sumatra and Kalimantan estates. The group revealed that most of its estates have been stressed by average monthly rainfall of less than 120mm for 3-4 months or longer. 
  • This is also one of the worst droughts its estates have experienced and could dampen its 1H16 FFB output by up to 20% yoy. 

Cutting production and new planting guidance

  • In view of this, it has lowered its FFB output guidance by 100k tonnes to 3.3m tonnes and its new planting target to 2,000ha for palm oil from 5,000-8,000ha due to the dry weather. The group expects the drought and haze that its estates have experienced in the current year to reduce its 1H16 and 2H17 palm oil production. 

We lower our earnings forecasts but keep Hold rating 

  • Our earnings forecasts decline reflect our earnings cut for its 73.5%-owned SIMP. We project a stronger 4Q for IFAR, thanks to the sale of inventory brought forward from 3Q, better performance from CMAA, and the absence of forex loss. 
  • The stock remains a Hold as it trades in line with its SOP; we prefer SIMP for direct exposure to the group’s plantation assets in Indonesia.

Ivy NG Lee Fang CFA CIMB Securities | 2015-10-29
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.60 Up 0.59