Towards Financial Freedom
Indofood Agri - CPO inventory rises HOLD
- We are downgrading Indofood Agri (IndoAgri) from a BUY to a HOLD with a lower fair value of S$1.40/share. We believe that IndoAgri's subsidiaries, ie London Sumatra and PT Salim Ivomas provide better investment exposure as their FY13F PEs are presently lower or on par with IndoAgri's.
- London Sumatra and PT Salim Ivomas Pratama are currently trading at FY13 PEs of 9.4x to 11.5x versus IndoAgri's 11.3x.
- IndoAgri's FY12 results were below our expectations and consensus estimates mainly due to a 57.6% QoQ fall in the EBITDA of the plantation division in 4QFY12. The 112.8% QoQ expansion in the EBITDA of the edible oils and fats division was not enough to offset the fall in the plantation EBITDA in 4QFY12.
- The QoQ fall in plantation EBITDA in 4QFY12 was led by a decline in sugar earnings and increase in CPO inventory.
- The group's CPO inventory increased from 61,000 tonnes as at end-Dec 2011 to 112,000 tonnes as at end-Dec2012.
- We understand that London Sumatra faced problems moving its CPO from the mill to the bulking installation due to poor roads in South Sumatra.
- Since December 2012, London Sumatra's CPO inventory had declined by 16,000 tonnes. London Sumatra plans to reduce its inventory by another 10,000 tonnes by endMarch 2013.
- EBITDA of the sugar sub-division shrank from Rp136bil in 3QFY12 to an estimated Rp50bil in 4QFY12 due to the completion of the sugar harvesting season. Sugar harvesting season in Indonesia usually takes place between May to September every year.
- Price differential between CPO in Malaysia and Indonesia continues to narrow.
- This is reflected in IndoAgri's average CPO price realised of Rp6,227/kg (RM1,974/tonne) in 4QFY12, which was only RM196/tonne lower than the spot price in Malaysia. In 3QFY12, the price differential was RM402/tonne.
- Edible oils and fats division (mainly cooking oil and margarine) recorded turnover and EBITDA, which were 5.4% YoY and 101.2% YoY respectively higher in FY12. Sales volume rose 4.7% to 808,000 tonnes in FY12. EBITDA margin inched up from 2.8% in FY11 to 5.4% in FY12.
Source: AmeSecurities
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