INDOFOOD AGRI RESOURCES LTD.
5JS.SI
Indofood Agri Resources - Better prices, more mature estates
- 4Q15 underlying pretax ahead of expectations on higher volumes. DPS of 0.52 S cents proposed
- Expect a drop in FFB yields this year, offset by higher ASP and volumes from maturing estates
- FY16F/17F forecasts tweaked by -4%/+1%, TP unchanged; BUY rating reiterated
4Q15 underlying pretax ahead of expectations.
- Excluding fair value changes on biological assets (Rp20bn loss), IndoAgri booked 4Q15 pretax profit of Rp555bn – ahead of Rp264bn expected – on account of stronger top line.
- The group had booked 4Q15 CPO sales volume of 309k MT (+29% q-o-q) – representing a drawdown of 26k MT from inventory – better than 249k MT of sales expected.
- Edible Oils & Fats revenue also spiked 20% q-o-q to Rp2,176bn, as compared to Rp1,914bn. DPS of 0.52 S cents was proposed.
Expect FFB flatter output growth this year.
- While Dec15-Jan16 rainfall had returned, we understand that this was not ample, and there could be a c.19% m-o-m drop in yields between Dec15 and Jan16. For this reason 1H16 output contribution could represent just 40% of the full year.
- In FY15, IndoAgri’s 1H15 FFB output represented 44% of FY15 output. We revised IndoAgri’s y-o-y FFB output growth to 2.8% from 5.4% - in line with management guidance of between 0% and 5% growth.
- We continue to expect volume growth, mainly coming from new maturities (forecast 14.3k ha this year).
FY16F/17F earnings revised by -4%/+1%.
- We revised IndoAgri’s FY16F and FY17F earnings by -4% and +1%, respectively, mainly on account of lower FFB yields, offset by slightly lower COGS to account for reduced upkeep, cultivation and harvesting costs in Lonsum.
- Based on our revised forecasts, stripping out Lonsum’s contribution and translation FX gains (losses), IndoAgri’s internal EBITDA is expected to stay flat at Rp1.55tr this year (from Rp1.56tr in FY15), before recovering to Rp2.35tr in FY17F.
Valuation:
- We employed DCF methodology (FY17F base year) to arrive at IndoAgri’s fair value of S$0.52/share (Rf 8.8%, Rm 15.7%, β 1.2x, WACC 12.6%, TG 3%) – adjusted slightly from S$0.54 previously.
- We reiterate our BUY call.
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
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http://www.dbsvickers.com/
2016-02-29
DBS Vickers
SGX Stock
Analyst Report
0.52
Down
0.54
