Indofood Agri Resources - Hit by Lower Volumes, ASPs plus Forex Charges

Results hit by lower ASPs for CPO, lower volumes 
IFAR reported 1Q15 PATMI of Rp35bn (-81% YoY, -85% QoQ), equivalent to about 4% of consensus estimates for FY15. Results were hit by lower ASPs for CPO and lower volumes for both palm products and edible oils & fats (EOF). Foreign exchange losses (- Rp117bn vs. a gain of Rp86bn in 1Q14) on an already tough quarter exacerbated impact on net income line. Excluding foreign exchange impact, net profit would be Rp163bn (-40% YoY). We cut our CPO price assumptions to US$680/t for FY15-16, long-term price of US$750/t, and reduce our FY15E and FY16E net earnings by ~5% and ~4% respectively.

FFB and CPO production affected by a dry 1Q14 
1Q15 nucleus FFB production was 650mt (-8% YoY, -24% QoQ), CPO production was 190mt (-9% YoY, -23% QoQ). FFB yields were poor at only 3.5mt/ha (-10% YoY, -24% QoQ), while CPO yield was down to 0.8mt/ha (-20% YoY, -11% QoQ), attributed to lower production and yields following a very dry 1Q14. EBITDA for this segment was Rp473bn (-42% YoY, -38% QoQ). New palm plantings continued to slow at 417ha vs 1,158ha in 1Q14.

Higher EBITDA for edible oils and fats due to lower input costs 
1Q15 EOF sales volumes was 157kt (-17% YoY, -13% QoQ). EBITDA recovered to Rp93bn (nm YoY, +38% QoQ) on lower raw material costs. There was some market share loss as competitors took advantage of lower raw material costs.

Capex guidance
Capex for FY15 is expected to be between Rp2.2trn– Rp2.5trn, less than the Rp3.1trn for FY14 (~23% reduction)

Capex to be prioritized on 
i) organic expansion on new plantings of oil palm and sugar plantations, 

ii) expansion of plantation production facilities, 

iii) expansion of downstream facilities.


Technical Analysis
Daily Chart
Maintain Sell rating, new TP S$0.65 
Maintain Sell on IFAR on higher G&A and interest expenses. Re-rating catalyst is linked to IFAR’s ability to transmit higher FFB volumes into better earnings, a function of a stronger CPO price environment as well as improved cost leverage. We prefer First Resources and DSNG for stronger hectarage growth. (Read Report)

Source : Citi Research

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