Indo Agri has booked almost Rp. 800bn in gains to biological assets in the last 3 years, in tandem with rising CPO prices. With CPO prices having halved over the past year, it is only expected that IndoAgri’s plantations values should be reversed accordingly. We had adjusted our reported net profit forecast downward to Rp.1,239.3bn for FY08, from Rp. 1,900.3bn previously. There is no change to core net profit forecast (i.e. ex-biological adjustments). This remains at Rp.1,551.3bn for FY08, which is in line with consensus of Rp. 1,561.5bn.
IFAR also affirmed that it will not have to recognise any impairment of goodwill for its 2007 London Sumatra acquisition, after an independent evaluation. However, ahead of the results, we warn that IFAR may need to revalue further downwards its US$ denominated loans, as well as a decline in the value of inventory. In 3Q IFAR made such downward adjustments of Rp. 27bn and Rp.65bn respectively.
Looking further ahead, we have reduced our assumption of average CPO prices for FY09 at Rm. 1,800 per tonne versus Rp. 2,100 previously, and bringing it in line with our assumption for Malaysian palm oil companies. Prices have stabilised around this level since the beginning of the year, and we now expect it to persist, given the current economic climate. Correspondingly, we have cut our assumption for cooking oil prices by a further 20% - IFAR had already cut its prices by 15% earlier in the year.
FY09 forecast is therefore cut to Rp. 1,071.8bn, indicating a YoY 30% decline in core earnings. With share values across the sector remaining weak, we peg fair value at 10.5x, in line with peer valuations. This yields a fair value of S$0.99, representing 80% upside to its current price. We maintain our Buy recommendation.
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1 comment:
Just stumbled upon ur site ... I've been following this stock & just missed the Q @ 0.465 2 days back & see d price escalating.
Very informative blog. I'll be following.....
Blackswan,
http://luxuryhaven.blogspot.com
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