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Indofood Agri Resources - DBS Research 2015-10-28: Sequential Recovery Priced In

Indofood Agri Resources - DBS Research 2015-10-28: Sequential Recovery Priced In INDOFOOD AGRI RESOURCES LTD. 5JS.SI 

Indofood Agri Resources - SEQUENTIAL RECOVERY PRICED IN 

Sequentially higher 3Q15 earnings. 

  • Based on 3Q15 CPO ASP of Rp6,763/kg (or c.US$488/MT - US$23 below spot), a 5% q-o-q higher CPO sales volume, and a 45% y-o-y jump in sugar sales volume, IndoAgri is projected to report 3Q15 earnings of c.Rp38bn. 
  • However excluding unrealised FX loss of Rp237bn (arising from US$250m debt exposure less US$70m cash as at end-Dec-14), the group’s underlying net profit is estimated to arrive at Rp215bn (i.e. 5-fold jump q-o-q). 
  • While this would bring IndoAgri’s 9M15 reported earnings to c.Rp75bn (vs. our FY15 forecast of Rp53bn), we are leaving our forecasts unchanged for now. 

Refining margins to recover in 4Q15 

  • Following the introduction of B15 export levies in Jul-15, local CPO and RBD Olein prices have traded below those in international spot markets. This divergence has adversely affected IndoAgri’s upstream segment, although the group’s edible oils should benefit from lower feedstock costs. 

Lower projected new planting. 

  • IndoAgri currently has c.56k ha of immature oil palm estates, which together with additional milling capacities to process additional output from maturing estates, would continue to require significant capital expenditure. 
  • In view of the weak CPO price environment (after imputing export levies) and stringent sustainability criteria, we expect the group to undertake a more manageable new planting of 5k ha this year and 7.5k ha next year. 

Valuation: 

  • We value IndoAgri at S$0.47/share based on DCF methodology (Rf 8.8%, Rm 15.7%, β 1.15x, WACC 12.5%, TG 3%). At its current price level, the counter has 22% downside potential.. 

Key Risks to Our View: 

  • IndoAgri’s share price is driven by CPO price expectations and to a certain extent by refining margin and sugar prices. A strong recovery in CPO prices (either data, weather or regulatory-driven) would boost its share price higher than our fair value, and vice versa.


Ben Santoso DBS Vickers | http://www.dbsvickers.com/ 2015-10-27
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.47 Same 0.47


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