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Indofood Agri Resources - Lacking near term catalysts

Shared By Stock Fanatic on Monday, March 2, 2015 | 2.3.15

■ 4Q14 core net profit of Rp275bn was below Rp225bn expected

■ Earnings were dragged by deeper losses in associates income, higher than expected interest expense and higher income tax

■ FY15F/16F earnings cut by 9%/5%; TP lowered to S$0.77

■ HOLD call maintained for 10% upside

Highlights

4Q14 earnings below expectations
Ex. biological asset gains, IndoAgri reported 4Q14 net profit of Rp275.1bn (+13% y-o-y; +58% q-o-q) – well below our forecast of Rp538bn. This brought FY14F earnings of Rp743bn (+48% y-o-y) – also below our FY estimate of Rp849bn.

Dragged by losses in associates, higher income tax
Poorer-than-expected performance was driven by deeper losses from associates, higher-than-expected interest expense and income tax. 4Q14 contribution from associates fell to Rp90bn loss from Rp20bn loss in 3Q14, bringing FY14 associates income to Rp149bn loss (vs. our forecast of Rp76bn loss). The associates comprise Heliae, an R&D development stage company egaging in producion of biofiel from algae, and a 34% stake in Roxas Holdings (Philippines). Income tax rate of 33% was also higher than our forecast of 29%.

Higher oil extraction rate achieved in SIMP
Oil Extraction Rate (OER) expanded to 21.7% (from 21.3%) in subsidiary SIMP, which contributed to better-thanexpected CPO output. For the quarter, 2,319 ha of oil palm were planted, bringing new planting to 6,350 ha for the year – below our 10k ha forecast.

Shorter cash conversion cycle
The group booked net debt to total equity ratio of 26.3% - down from 28.1% at end Sep14, with repayment of Rp730bn Sukuk in 4Q14. Yet, cash balance remained healthy at RpRp3.6tr, as rolling cash conversion cycle shortened to 23 days from 38 days in the previous quarter due to drop inventory days. The group had realised 38k MT of CPO stock during the quarter.

Outlook

2014 dry weather to affect yields in Sumatra
The group is guiding 5-10% y-o-y rise in own FFB output for FY15, although this remains subject to improving conditions in North Sumatra, which had shown some lagged impact from dry weather in 1Q14. The group expects FY15 CPO ASP (in Rupiah terms) to remain flat at best. The group is guiding new planting of 5-10k ha this year.

FY15F new planting raised to 6k ha
Imputing actual FY14 data, lower new planting, improved OER, and losses in associates income, we trimmed FY15F/16F earnings by 9%/5%.


Technical Analysis
Daily Chart
Valuation

Still on track to achieve our target
Our DCF-based TP is trimmed slightly to S$0.77 from S$0.80; mainly reflecting lower long-term growth potential from lower new planting. HOLD for 10% upside. (Read Report)

Read Related Report

Source : DBS Group Research


Posted on Monday, March 2, 2015 | 2.3.15
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