Warrants Highlight

IndoFood Agri - Cheapest name in the sector

Macquarie Equities Research (MER) recently issued a report on IndoFood Agri Resources (IFAR) on 24 Sept 2012, rating the stock ‘Outperform’ with a 12-month target price of $1.60.

After a site visit, MER stated that they are more confident that IFAR’s sugar project can indeed drive half of its operating income growth over the next five years. Sugar also diversifies IFAR’s growth away from just CPO. Below are further excerpts from the MER report:

Macquarie’s Indofood Agri Resources warrants

Indonesian sugar is one of the most attractive reinvestment opportunities in the Agri space, MER thinks. It could take Indonesia a decade to reach sugar self sufficiency. Until then, the government-set sugar floor price is likely to remain at a high level (~US$900/mt today versus international price of US$440/mt).

But securing suitable land, much less cultivating it, has proven to be a major barrier to entry. IFAR secured its land back in 2008. Its refinery also took three and a half years to complete, and is the first to be commissioned in Indonesia in the last ten years.

Yes the ramp-up in IFAR’s sugar business has taken longer than expected. And this has contributed to earnings disappointments. But, post MER’s site visit, they can confirm that this large scale, integrated site is now up and running.

After hearing IFAR’s seasoned team’s war stories, MER thinks other greenfield projects will be difficult to execute. In this respect, MER would note Wilmar’s abandonment of a large land concession for sugar cultivation in Papua.

Action and recommendation
Whilst MER sees a near term rebound in CPO prices, MER expects a flattish CPO price over the next two years, which puts a premium on production growth. IFAR’s CPO production is set to grow in the high single digits.

MER sees its sugar assets providing a diversified, uncorrelated growth boost, leading to a solid 11% group earnings compounded annual growth rate (2012-14E). At ~9x 2013E PE, IFAR is the cheapest name in the sector regionally. Potential M&A (flagged by IFAR) is an overhang, but MER would look past this at current levels.

Singapore Market Wrap

More Bad News

The Straits Times Index (STI) ended 0.7% (20.4) lower day-on-day to 3046.7, aggravated by Singapore's industrial production falling 2.2% year-on-year in August, faring worse than economists' expectations of a 1.1% increase. This suggests that economy may slip into recession this quarter, raising the odds of monetary easing by the central bank next month.

STI 3100MBeCW121031 (Q1AW) exercise level 3,100.*
STI 2950MBePW121031 (Q0ZW) exercise level 2,950.*

Singtel slips

Shares of Singtel headed south after news broke that Temasek, Singapore's sovereign wealth fund, is selling off up to $1.6 billion worth of shares. This sale will reduce Temasek's stake in Singtel from 54.4% to 51.9%. It dropped 3.9% ($0.13) to $3.20 day-on-day with 532 million shares exchanging hands.

SingTel MBeCW130301 (PB6W) exercise level 3.30.*
SingTel MBeCW130603 (Q4AW) exercise level 3.80.*

Oil Falls to 7-week Low

Oil fell to the lowest level in seven weeks after a report showed rising U.S. stockpiles and the Federal Reserve Bank of Philadelphia President Charles Plosser said a new stimulus plan probably won't boost economic growth. It temporarily fell below $90 a barrel for the first time since August 3 on the New York Mercantile Exchange. It had surged to $100.42 a barrel on September 14, its highest this year, after the Fed said it will undertake a third round of quantitative easing.

Oil-related companies such as Keppel Corp remained unchanged for the day's trading session to close at $11.39. SembCorp Marine was down 0.79% ($0.07) to $5.00 day-on-day.

KepCorp MBeCW121101 (Q0AW) exercise level 11.50.*
KepCorp MBePW121204 (Q4FW) exercise level 11.00.*

SembMar MBeCW130104 (Q4NW) exercise level 5.50.*
SembMar MBePW130103 (Q4GW) exercise level 4.70.*

Overnight Market Wrap

EU crisis takes precedence over US housing

Last night, the US announced more housing data and new home sales added on to signs that the housing sector is improving. The commerce department showed that sales were near a two-year high and were up 28% compared to a year ago. Low interest rates may be pushing demand higher while the lack of supply is supporting the decline in home prices.

Despite the good US economic data, the S&P fell 0.6% as compared to the previous day, closing at 1433.32. Investors were increasingly concerned about the EU crisis. Germany, Finland and the Netherlands said that Spain should share the debt burden and not expect the European Stability Mechanism to dole out money freely. The Euro Stoxx 600 fell 1.8% day on day.

Overnight Markets

Indices	Last	Change
STI	3046.68	-0.7%
HSI	20527.70	-0.8%
DJIA	13413.50	-0.3%
S&P 500	1433.32	-0.6%
Nasdaq	3093.70	-0.8%
China A50	6949.33	-0.8%

Corporate News

Corporate Announcements

Thai Beverage Public Company Limited and TCC Assets Limited to vote against F&N's proposed capital reduction.

Earnings release dates:
Thu 18 Oct: SGX (1Q13)

Ex-dividend dates:
Tue 6 Nov: Olam ($0.05)