Indofood Agri Resources: A good start to the year

Better than expected earnings. Net profit came in at Rp240.2b (+644.8% q-o-q, -24.0% y-o-y). Annualised, it is ahead of expectation primarily due to lower-than-expected costs and realized gains from the utilization of low-priced CPO inventory.

Seasonally lower volume not as bad as expected. 1Q09 CPO sales volume fell 14% q-o-q, while palm kernel sales volume fell 20%. However, margarine and cooking oil sales volumes recovered by 24% and 2% q-o-q, respectively. Margarine volume was driven by demand from industrial clients and a pick up in exports to China.

Maintain Buy, TP raised. We raised FY09F and FY10F EPS by 24.7% and 2%, respectively, after imputing lower costs, higher CPO production volume, and reduced new planting this year (the group indicated that it might accelerate new planting activities but unlikely to match last year's). These changes affected our DCF valuation (WACC 12.4%; terminal growth 3%), which now yields a fair value of S$1.10 (vs S$1.00 previously).

Strong growth potential. Out of its 54,114 immature hectareage, c.30,000 hectares are expected to mature between now and 2010, and the rest in 2011. This means that over the next five years IndoAgri's volume growth will accelerate from 5.2% assumed for this year.

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