INDOFOOD AGRI RESOURCES LTD.
5JS.SI
Indofood Agri Resources - Prefer SIMP for direct exposure to CPO
- El Nino-induced drought to cut its 2016 FFB output.
- Forex losses caused the group to post losses in 9M15.
- We expect higher CPO prices and the absence of forex losses to lift FY16 earnings.
- Changes in accounting policy for IAS 41 could cut its FY16 net profit by Rp150bn.
- Maintain Hold and SOP-based target price of S$0.60. We prefer SIMP.
■ Current drought to cut 2016 production
- The 2% yoy rise in 9M15 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 as much as 20% yoy.
■ Cutting production and new planting guidance
- In view of this, it has lowered its 2015 FFB output guidance by 100k tonnes to 3.3m tonnes and its new planting target from 5,000-8,000ha for 2015 to 2,000ha for palm oil for 2015, due to the dry weather.
- The group expects the drought and haze that its estates experienced in 2015 to reduce its 1H16 and 2H17 palm oil production.
■ 9M15 in the red due to forex losses
- Indofood Agri's (IFAR) 9M15 core net profit (excluding forex losses) fell 55% yoy due to weaker plantation earnings as well as losses from CMAA (its 50%-owned sugar JV in Brazil).
- The group posted higher forex losses of Rp482bn in 9M15 arising from translation loss on its US$250m debt as the 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.
■ Higher earnings projected in FY16
- 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 losses.
- For FY16, we expect IFAR to deliver stronger earnings on the back of higher CPO and sugar prices.
- We project CPO price to increase 12.5% to an average of RM2,450 per tonne for 2016.
■ Potential impact of IAS 41 on earnings
- The group has said that the changes in accounting policy IAS 41 for biological assets will result in a one-off adjustment of its plantation assets back to historical costs less accumulated depreciation and impairment.
- Our estimate shows that shareholders equity could be written down by 22%, following the adoption of the new accounting charges. The estimated potential impact on our FY16 net profit is Rp150bn due to higher depreciation charges.
■ Prefer SIMP for exposure to the plantation assets
- IFAR remains a Hold as the share price is supported by the low implied EV/ha of the group though this is partially offset by the weak near-tern earnings.
- We prefer its plantation arm, SIMP for direct exposure to the group’s plantation assets in Indonesia.
Ivy NG Lee Fang CFA
CIMB Securities
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http://research.itradecimb.com/
2015-12-09
CIMB Securities
SGX Stock
Analyst Report
0.60
Same
0.60
