Towards Financial Freedom
Indofood Agri - Cost increase from newly mature plantations HOLD
- We are keeping a HOLD on Indofood Agri (IndoAgri) with a lower fair value of S$1.23/share.
- According to consensus, IndoAgri's subsidiaries, London Sumatra and PT Salim Ivomas Pratama, are currently trading at FY14 PEs of 8.3x to 9.4x versus IndoAgri's 9.1x.
- IndoAgri's 1QFY13 results were significantly below our expectations and consensus estimates due to an increase in the cost of sales. Sales volume of the edible oils and fats division was also disappointing.
- Although group turnover only softened by 3.2% YoY to Rp3.1 trillion in 1QFY13, cost of sales climbed 17% to Rp2.5 trillion due to cost of newly mature oil palm plantations.
- In Indonesia, immature plantations are capitalised as assets and then amortised when they come into maturity. This is an earnings pattern reflected in the recent financial results of Indonesian plantation companies such as BW Plantations and Astra Agro Lestari.
- We believe that some Indonesian plantation companies are experiencing tree stress this year.
- IndoAgri's FFB production was flat YoY in 1QFY13 while FFB outputof First Resources was 4% lower. However, BW Plantations' FFB production expanded 24% YoY. Astra Agro's FFB output was up 15% YoY in the first two months of FY13F.
- In spite of IndoAgri's flat FFB production in 1QFY13, sales volume of CPO increased 14.3% from 182,000 tonnes in 1QFY12 to 208,000 tonnes in 1QFY13.
- The increase in sales volume was due to the drawdown of excess CPO inventory. IndoAgri's CPO inventory rose from 61,000 tonnes as at end-Dec 2011 to 114,000 tonnes as at end-Dec 2012. CPO inventory stood at 87,000 tonnes as at end-March 2013.
- Sales volume of the edible oils and fats division shrank 11.7% from 206,000 tonnes in 1QFY12 to 182,000 tonnes in 1QFY13. This is in spite of a decline in the average selling price of the division.
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
