INDOFOOD AGRI RESOURCES LTD.
5JS.SI
Indofood Agri Resources - Expect sequential recovery
- Indofood Agri's (IndoAgri) 3Q15 underlying net profit of Rp129bn (ex translation FX losses) was below Rp215bn expected
- Timing of sales recognition caused weaker top line; partly offset by lower-than-expected costs
- FY15F/16F earnings adjusted 156%/18% higher on lower costs; TP raised to S$0.52
- No near-term catalysts; despite forecast earnings jump (from low base). HOLD rating is maintained.
Another disappointing quarter.
- IndoAgri reported a 3Q15 net loss of Rp154bn – below Rp38bn expected. Sugar sales volume was half of our forecast due to timing issues (as at end of Sep-15 the group still had c.27k MT of undelivered inventory).
- Earnings were also weighed down by 4% y-o-y drop in CPO sales volume, 16% yo-y lower CPO ASP; Rp322bn in FX losses, and losses from CMAA JV. This brought 9M15 earnings to a Rp117bn net loss.
- Excluding translation FX losses, IndoAgri booked 3Q15 underlying earnings of Rp129bn (-49% y-o-y) – below Rp215bn expected.
- But costs were notably lower than expected, helping to raise 3Q15 GPM to 25.1% from 21.8% in 2Q15.
Expect sequential earnings recovery.
- Imputing recent CPO price recovery, lower-than-expected costs, more sugar sales, and reversal in FX losses, we expect IndoAgri to book sequential 4Q15 earnings recovery.
- Upkeep and harvesting costs are likewise lowered by 6%, offset by slightly higher selling expenses to cover for new downstream product launches.
- All in, we adjusted FY15F/16F earnings by 156%/18% higher.
- In keeping with USD/IDR year-end exchange rate of Rp14,470 (based on DBS Bank's in-house forecast), we expect muted FX gains in 4Q15 relative to current level.
Dry weather impact in 1H16.
- The group lowered CY15 FFB output guidance to 3.3m MT from 3.4m MT – on severe dry weather YTD.
- Within its geographic presence, North Sumatra (20% of output) had significantly reduced rainfall throughout the year. Riau and South Sumatra estates have also been under stress since May/Jun-15; and Kalimantan estates since Jul-15.
- We understand yields may drop by c.20% y-o-y in 1Q16, although CY16 output may be less affected – depending on 2H16 recovery. Lower yield is also expected in CY17 due to the lagged impact of this year’s rainfall deficit.
- IndoAgri’s South Sumatra sugar estates may also see 10-15MT/ha of yield losses – subject to rainfall in 1H16.
No near-term catalysts.
- We raised our DCF estimate by 13% to S$0.52 and maintain our HOLD rating.
- We believe prospective drop in output, export levies, and export taxes would continue to weigh on earnings – despite potential recovery in 1Q16 CPO prices on reduced global inventory.
Ben Santoso
DBS Vickers
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http://www.dbsvickers.com/
2015-10-30
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