Indofood Agri Resources— strong recovery

Indofood Agri (IFAR) reported Q2 pre-ex net profit of Rp405bn, bringing H1 net profit to Rp740bn, which is 77% of our full-year forecast or 71% of consensus. H1 pre-ex pre-tax profit was more in line with our forecast, at 52% of our full-year forecast. Exceptional items included Rp593bn for fair value gain on plantation assets and Rp240bn for forex gains.

Plantation EBIT accounted for almost all group EBIT as cooking oil and fats earnings fell on higher raw material and commodities division was adversely affected by a strong Rupiah compared with a weak US$. Plantation EBIT was up 41% QoQ on 24% QoQ higher CPO average selling price and 11% QoQ growth in production.

IFAR is optimistic about the H209 industry outlook on lower fertiliser costs (expected to be 30% lower compared with 2008), stronger production (H2 production to be 55% of full-year crop), and continued firm demand for CPO that could support the current cost, insurance and freight (CIF) price of around Rp7,200/tonne (US$730/t, RM2,540/t).

Our price target is based on a sum-of-the-parts valuation, where we value the plantations division on a DCF assuming a long-term CPO price of US$570/tonne and a WACC of 14%. For every 10% change in our 2009 CPO price assumption of US$555/tonne, 2009E EPS increases 20%.

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