Indofood Agri - Powering ahead in 2Q09

Better 2Q09 prospects. 2Q09 CPO prices rebounded by 31.7% q-o-q; and at the same time, FFB yields are also expected to recover from tree stress q-o-q. We expect IndoAgri’s 2Q09 revenues to reflect these developments. We also estimate IndoAgri to book unrealised FX gains of c.Rp124bn in 2Q09 (from unrealised FX losses of Rp178bn in 1Q09), as the Rupiah exchange rate to the USD has strengthened from Rp11,575 as at 31 March to Rp10,208 as at 30 June.

09F-10F EPS adjusted by +0.6% and –3.9%, TP raised to S$1.75. We revised our earnings forecasts to reflect changes in IndoAgri’s volume growth estimates, cost structure, and selling prices. While these changes resulted in only minor EPS adjustments through to 2011F, the impact is more pronounced from 2012F onwards (vis-àvis our previous forecasts). Combined with a reduction in Indonesian risk free rate to 9.5% (from 10% previously), we raised the counter’s TP to S$1.75.

Integration is paying off. As we expect IndoAgri’s downstream business to be fully sufficient by 2013F and its sugar plantation and refinery to contribute meaningfully by 2012F, the group should continue to deliver double-digit growth from 2011F through 2016F. Given this prospect, we believe IndoAgri would be more than able to service and repay its debts. We forecast the group’s net gearing to settle at 37.1% by the end of this year; while interest coverage should remain at a comfortable 5.8x.

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