Indofood Agri Resources - DBS Research 2019-05-02: 1Q19 Still In The Red


Indofood Agri Resources - 1Q19 Still In The Red

  • INDOFOOD AGRI RESOURCES LTD. (SGX:5JS)'s underlying net loss of Rp 150bn in 1Q19 narrowed from Rp 281bn in 4Q18.
  • Profitability still affected by weaker plantation contribution due to weak margins.
  • Remain cautious on earnings momentum.
  • Recommend to accept buyout offer at S$0.28/share.

What’s New

Underlying net loss of Rp 150bn narrowed from Rp 281bn in 4Q18.

  • INDOFOOD AGRI RESOURCES LTD. (SGX:5JS)'s underlying net loss of Rp 150bn narrowed from Rp 281bn in 4Q18 (1Q18: Rp 95.5bnprofit) on the back of strong edible oils and fats performance which contributed c.60% to total revenues, and a vast improvement in EBITDA margins from 2.1% in 1Q18 to 10.4% in 1Q19 (4Q18 : 10.2%).
  • Sales volume supported topline of Rp3.3tr (+5.8% y-o-y, -11.6% q-o-q). Edible oil and fats revenue reached Rp2.7tr (+22% y-o-y, +5% q-o-q), while plantation division’s revenue was Rp1.8tr (flat y-o-y, -27% q-o-q).
  • For the plantation division, CPO and PK sales volume reached 214k MT (+25% y-o-y, -29% q-o-q) and 47k MT (+9% y-o-y, -16% q-o-q) respectively. CPO sales volume performance was slightly higher than output in 1Q19 due to liquidation of its stockpile.
  • CPO and PK production reached 192k MT (+4% y-o-y, - 26% q-o-q) and 47k MT (7% y-o-y, -23% q-o-q) respectively, and the trend was in line with fruits production pattern where productivity was lower q-o-q due to seasonally low output in 1Q19.

Overall profitability still remains affected by weaker upstream plantation results.

  • Indofood Agri Resources continued to post overall losses due to continued weakness in the plantation segment. Revenues continue to be largely flat as the lower average selling price of palm products was offset by higher sales volume of palm products and sugar.
  • While EBITDA margin recovered from the lows of 3.7% in 4Q18 to 11.3% in 1Q19, this is still far from margins of 27.0% in 1Q18, given the low CPO price environment.


Recommend to accept the offer.

  • We have previously recommended to accept the offer, though the offer is at the lower end of acquisition multiples for plantations, as we remain watchful over its negative earnings trend. Our last recommendation on Indofood Agri Resources was HOLD (Target Price S$0.19/share) as we remain cautious on Indofood Agri Resources’s earnings momentum and its ability to return to pre-2017 earnings levels, although Indofood Agri Resources' share price performance and valuations were undemanding.
  • We recommend more direct exposure via its Indonesian-listed upstream entity London Sumatra (LSIP IJ, BUY, Target Price Rp1,400).

William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | 2019-05-02
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.190 SAME 0.190