Indofood Agri Resources

[winston]

From CIMB:-

Indofood Agri Resources (S$2.42) - Higher crude oil price raises CPO floor price

Raising CPO price for new crude oil assumption

What has changed? Yesterday, our regional oil analyst turned more bullish on crude oil price prospects. Instead of a sharp pullback in 2008 and a continued fall in 2009-10, we now expect oil price to stay firm at US$110/barrel in 2008 before strengthening to US$120/barrel in 2009 (see our regional oil report dated 13 May). This change in the direction of our assumptions takes our oil price projections 57-60% higher than our earlier forecasts.

How does it impact CPO price? Higher crude oil price enhances the economic viability of biodiesel and ethanol and may boost demand for edible oils and grains for energy purposes. It also provides a higher floor price for CPO and could prompt more
governments to announce biofuel incentives. Upping CPO price forecasts. In view of our higher crude oil price assumptions, we are raising our CPO price forecasts by 6% to US$1,045 per tonne (fob) for 2008, 3% to US$1,030 for 2009 and 3% to US$940 for 2009.

Valuation and recommendation
Raising net profit forecasts by 3-5% for FY08-10. We have raised our net profit forecasts by 3-5% after accounting for the new CPO price assumption and earnings upgrades of 2-6% to our FY08-10 EPS estimates for London Sumatra.

Maintain Outperform and revised up target price of S$3.25. In line with our earnings upgrade, we raised our target price of S$3.25, which remains based on 18x forward P/E from S$3.10. We continue to like the stock for its exposure to rising CPO prices and potential to extract cost-savings from LonSum through lower transport and administrative expenses. Potential share-price triggers include better-than-expected results, higher CPO prices and possible M&As.

[winston]

Not vested anymore. From DMG:-

Indofood Agri Resources: In a Sweet Spot for Growth (INITIATE COVERAGE - BUY\S$2.31\Target S$3.34)
Selena Leong (62323898, [email protected])

Strong global demand for CPO.
Outlook for the palm oil industry is still looking positive.

First, demand for CPO worldwide has remained strong. Consumption grew by more than 28% from 28.2m tons in 2003 to 36.3m tons in 2006.

Secondly, prices of CPO have been soaring as under-cultivation in the past has resulted in supply lagging demand. CPO prices rose from a low of US$272/tonne between Oct 2000 to Sept 2001, to a recent high of US$1,395/tonne in March this year.

Leading producer of CPO with large land bank. IFAR is one of Indonesia’s leading oil palm planters and producers of CPO, producing over 312,000 tons in FY2007 and 170,000 tons in 1Q 2008. It has approximately 165,853 ha of planted area, with a mature area of 122,151 ha. For comparison purposes, the size of Singapore is about 70.4m ha. IFAR’s total land bank is 406,519 ha (excluding plasma) as at end Mar 2008 (up from 237,262 ha at end 2007, prior to Lonsum’s acquisition), which includes an unplanted area of 240,666 ha. This sizable land bank would help support IFAR’s aggressive planting targets.

Acquisitions boost CPO output significantly. IFAR completed their acquisition of 56.41% interest in London Sumatra (Lonsum) on 30 October 2007 and increased their interest to 64.42% by Dec 2007. For 1Q 2008, with Lonsum’s contribution, IFAR’s CPO production was 170,000 tons. This 161% YoY jump in production was one of the main contributors to IFAR’s strong 1Q 2008 results.

Synergies from Lonsum acquisition. In FY2007, sales of oil palm products accounted for about
78% of Lonsum’s revenue while CPO production amounted to 351,000 tonnes. The consolidation of both operations and estates will enable expedition of their plantation expansion strategy and
leveraging on economies of scale for higher productivity and output. The cost advantages achieved
will in turn boost both Lonsum and IFAR’s competitiveness in the market.

In time, there would be greater cost efficiencies, productivity, economies of scale and improved yields in the long run. This wil enable IFAR to drive down their unit cost of production, ensuring a highly competitive business model.

Initiate coverage with BUY. With the global trend of higher consumption and usage of palm oil and the present high CPO price, we believe that IFAR is in a sweet spot to enjoy the present conducive environment, especially with its high ratio of mature acreage. Using a P/E of 14x in view of investors’ continued bullishness of the commodities markets, we value IFAR with a fair value of S$3.34, or a potential upside of 45% from its last closing price of S$2.31. We are initiating coverage on IFAR with a BUY rating.

[winston]

Not vested. From Kim Eng:-

Indofood Agri Resources – Is looking to expand and diversify by venturing into Indonesia's sugar industry through a proposed $56m acquisition of sugar cane plantation company PT Lajuperdana (PT LPI). The acquisition would take place through IndoAgri's 90%-owned subsidiary PT Salim Ivomas Pratama (PT SIMP) and require the subscription of 187,500 new PT LPI shares, which represents 60% of the enlarged capital share.

PT LPI owns a 37,500 hectare sugar cane plantation in South Sumatra and a sugar production factory in Central Java. Over the next three years, PT LPI plans to grow its sugar cane planted area seven times from 2,745 to 18,600 hectares.

PT LPI is also investing US$118m in a new sugar factory now under construction and slated to come on stream by end-2010 with a daily processing capacity of 8,000 tonnes of cane.

Concurrently, its existing factory in Central Java, which is being rehabilitated, will restart operations in the second half of this year. The costs of revamping the factory, which can process 3,000 tonnes of cane per day, is expected to be about US$10m.

[millionairemind]

Indofood Agri Resources
Aug 15 close: $1.28
CIMB-GK RESEARCH, Aug 15


H1 2008 core net profit (excluding biological gains) of 882 billion rupiah (S$135 million) accounts for 60 per cent of our full-year estimate and 46 per cent of consensus. We consider the results to be in line with our expectation but below consensus.

This is because we expect a weaker H2 from lower crude palm oil (CPO) selling prices and higher fertiliser costs. As expected, the group did not declare any interim dividend.

Key surprises in Q2: Both cooking oils and fats and commodities performed above expectations due to better-than-expected sales volume and profit margins. The group gained market share in the branded cooking oil segment as well as benefited from the rapid growth of supermarket chains in Indonesia. Commodities posted stronger earnings thanks to higher processing volume and more timely purchases of raw materials.

All divisions turned in higher earnings. Q2 2008 core net profit grew 51 per cent y-o-y, thanks to higher selling prices, better earnings from its downstream divisions as well as additional contributions from London Sumatra. To recap, the group started consolidating LonSum's results from Nov 1, 2007. Core net profit fell 37 per cent q-o-q due to a higher effective tax rate and higher minority interests.

Raising FY2008-10 EPS forecasts by 3-6 per cent. We have raised our earnings estimates by 3-6 per cent for FY2008-10 to account for the better contributions from cooking oils & fats and commodities. Our new forecasts assume lower earnings in H2 2008 due to weaker CPO prices and higher estate costs.

Our target price has been raised to $1.63 after our earnings revisions, still based on 10x forward PE. The share price has corrected by 34 per cent in the last month. As such, it now offers 19 per cent upside to our revised target price, which is in line with expected market returns. Coupled with the better performances from its downstream units, we upgrade the stock to 'neutral' from 'underperform'.
NEUTRAL

[winston]

Not vested.

Indofood Agri Resources - Kim Eng resumed coverage of Indofood Agri Resources on Friday with a "buy" recommendation and a target price of S$1.65.

It said the stock has been oversold in tandem with the recent decline of crude palm oil prices, adding Indofood Agri is still able to extract healthy margins due to its low cost of production and position as a key cooking oil supplier in Indonesia.

[millionairemind]

Indofood Agri Resources

Sales by Newton Investment Management Ltd in agri-business firm Indofood Agri Resources since August totalling 30.2 million shares have lowered its direct stake by 30 per cent to below 5 per cent of the issued capital. The disposals were made from Aug 12 to Oct 17 at $1.17 to $0.41 each.

The group last sold 11.8 million shares on Oct 17 at an estimated price of 41 cents each, which reduced its holdings by 14 per cent - to 72 million shares or 4.9 per cent. The asset manager previously sold 16.3 million shares on Sept 15 at an estimated price of 71.5 cents each, and 2.1 million shares on Aug 12 at an estimated price of $1.17 each. The sales in the past three months were made at sharply lower levels than its purchase prices, based on the 27.6 million shares that the fund manager acquired from April 23 to June 24 at estimated prices of $2.43 to $2.87 each. Newton Investment Management reported an initial filing (for the second time) on April 11 at $2.39 each, which raised its interest to 5.2 per cent.

Investors should note that CEO Mark Julian Wakeford purchased 100,000 shares from July 8 to 10 at an average of $2.25 each, which increased his direct holdings by 50 per cent to 300,000 shares. He also has deemed interest of 200,000 shares. He previously acquired an initial 200,000 shares on Jan 21 and 22 at an average of $1.85 each. The stock closed sharply lower from the CEO's purchase prices to 42.5 cents on Friday.

[millionairemind]

Published October 31, 2008

Indofood Q3 profit up 7.6%, revenue doubles
With palm oil prices falling, pressure on margins continues

By OH BOON PING

PLANTATION group Indofood Agri Resources reported a 7.6 per cent rise in third-quarter net profit to 300.7 billion rupiah (S$41.2 million), and warned of continued pressure on net profit margins in the current quarter.

For the three months ended Sept 30, 2008, its revenue doubled to 3.2 trillion rupiah from 1.56 trillion rupiah, while earnings per share rose slightly to 207.67 rupiah - from 207.06 rupiah.

On a nine-month basis, its net income more than doubled to 1.55 trillion rupiah from 624.4 billion, while turnover was up by 121 per cent to reach 9.35 trillion rupiah.

During the quarter, its plantation business, which accounts for the bulk of its business, posted a 187 per cent jump in sales to 1.75 trillion rupiah. This was driven largely by the added contribution of 964 billion from subsidiary London Sumatra and higher volume growth.

For example, crude palm oil volume rose to 186,784 tonnes in the quarter - up from 82,692 tonnes previously, and the firm benefited from the rising CPO prices.

Cooking oil and fats division recorded a revenue growth of 45 per cent to 1.9 trillion rupiah due to higher selling prices and volume growth in consumer pack cooking oil in the domestic Indonesian market, while commodities more than doubled its sales to 469.7 billion rupiah on higher export volume of crude coconut oil and average selling price.

However, the resulting 33 per cent jump in profit after tax was eroded by a substantial rise in minority interest, thus causing a slight rise in net income attributable to shareholders.

In a briefing, Indofood chief executive Mark Wakeford told reporters that CPO prices have started to come down, and this will exert pressure on profits from its plantation business. Therefore, Q4 net profit margins may come under more pressure.

On its part, the firm will focus on raising its crop yield while keeping its cost low. Sales volume is expected to hold firm, while Indofood expects to benefit from falling fertiliser and petroleum cost.

As the credit crunch and worsening economic climate pose challenges for smaller players, Mr Wakeford sees possible consolidation in the sector and may consider acquisitions as a growth strategy.

As at end-September, the firm had a cash position of US$170 million - substantially higher than the US$52 million loan repayments which had to be met next year.

In a report, CIMB pointed to the scrap in export duty on CPO in Indonesia, adding that the move will boost demand for Indonesian CPO by making its palm oil more price competitive. These moves could benefit Indonesian producers such as Indofood.

[winston]

From DBS:-

Take advantage of mispricing

We initiate coverage of integrated palm oil producer Indofood Agri Resources (IndoAgri) with a Buy rating and target price of S$0.75. Following its 2007 acquisition of London Sumatra (Lonsum), the group is now self-sufficient in its CPO requirements, hence benefiting from high upstream margin, while still enjoying major downstream market share in Indonesia. Growth should be fueled by plantation earnings from its young age profile.

Mispriced. IndoAgri is now trading at forward PE of 5.1x, FY09F PBV of 0.6x, and 62% discount to DCF. We believe
concerns surrounding the group’s 58% gearing ratio (FY09F) and lack of dividends have been overblown. We see no reason for 25-50% discount in the group’s EV/planted compared to its Indonesian-listed peers.

Size matters. As one of the leading plantation groups in Indonesia, IndoAgri’s current scale and market share are
tough to replicate, if not impossible. Its CPO production is forecast to reach 0.8m MT next year – second only to Astra Agro’s 1m MT and higher than Wilmar’s own production of 0.7m MT. The group has a commanding 45% market share in Indonesia’s branded cooking oil market.

Still growing. IndoAgri’s organic expansion in planted area (having expanded by c.40% of planted area in the last 2 years alone) is expected to continue through 2012. This will contribute to double-digit volume growth well through 2015F.

Down-cycle more than priced in. We set our price target based on 7.0x FY10F PE, as we believe plantation stock’s PE valuation remains in a low-cycle. This yields target price of S$0.75, which implies 50% upside from current level.

[winston]

INDOFOOD AGRI RESOURCES LTD - UBS Investment Research downgraded Indofood Agri on Monday to "sell" from "buy" saying its valuation is unattractive after its share price has more than doubled from S$0.60 apiece in March.

[winston]

INDOFOOD AGRI RESOURCES LTD - Goldman Sachs rated Indofood Agri Resources as its top pick among six commodities firms listed in Singapore and Malaysia due to its low valuations, high earning leverage to rising crude palm oil prices and strong organic growth.

Source: Reuters