Agri-Resources - Supportive 2Q09 Results

Monday, August 31, 2009

Stay OW: We maintain our PT for Indofood Agri-Resources’ (IFAR) at S$1.90 per share as we are keep our EPS estimates essentially unchanged. IFAR’s share price is now discounting a CPO (crude palm oil) price of US$770/T vs. our F2010 estimate of US$800/T, we estimate. At our PT, IFAR would trade at F2010 P/E of 11x, which we view as attractive against a sector average of 14x.

Supportive 2Q09 Results; EPS Unchanged. IFAR’s 2Q09 plantation profits grew 40% Q/Q, offsetting the lower profits from non-plantation divisions. The net impact is neutral to our estimates. Given positive company guidance, we expect better non-plantation profits in 2H09.

CPO Stocks Remain Tight: We believe the CPO price will remain firm in the near term. Indonesian FFB (fresh fruit bunch) yields recovered in 2Q09, but we continue to see tightness in global CPO stock levels in the near term for two reasons: 1) yield stress is not over in Malaysia as we see a yield recovery for Malaysia only in 2010; and 2) CPO export demand remains robust.

10% Upside: Our 2009-11 EPS estimates are 18% above consensus on our higher CPO price assumption. Long term, IFAR is one of top two picks within our CPO coverage; KL Kepong (KLKK.KL, OW, RM13.40) being the other. However, short term, we prefer Golden Agri-Resources (GAGR.SI, OW, S$0.48; +20% upside) and KLK (+19% upside) given their superior share price upside. Near-term catalysts: 1) Consensus earnings upgrade; 2) firm CPO price trend going into Ramadan festival; and 3) good 3Q09 results in November 2009.


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