Strong 2Q09 earnings on higher ASPs and forex gains. Indofood Agri Resources (IFAR) posted strong 2Q09 core net profit (excluding changes in fair value of biological assets), which increased 78% qoq to Rp427b. This was mainly attributable to higher crude palm oil (CPO) average selling prices (ASP) (+24% qoq) offset by lower CPO sales volume (-3% qoq), as well as forex gains of Rp240.2b in 2Q09 vs a loss of Rp94.8b in 1Q09.
1H09 core net profit, however, declined 21% yoy. Results are above our expectation as 1H09 core net profit represents 63% of our previous forecast. EBITDA margin improvement in 2Q09. EBITDA increased 31% qoq in 2Q09 on stronger revenue while cost held steady. Therefore, EBITDA margin improved to 37% in 2Q09 from 33% in 1Q09.
Sturdy CPO production ahead. As about 40% of plantation area is in the prime age and can produce high yield, and another 29% is expected to become mature area of about 54,789ha, we expect fresh fruit bunch (FFB) production to increase at a three-year CAGR of 9% in 2008-11.
Expect stronger revenue and sustainable margins in 2H09. We expect IFAR to post robust revenue growth in 2H09 on the back of sturdy CPO prices and higher production volume. Moreover, we believe margins in the plantation division are sustainable thanks to lower fertiliser purchase prices. Fertiliser prices ytd have fallen 30% compared with that in 2008. And IFAR’s current fertiliser price is 10% lower than in 1Q09.
Maintain BUY. As we have lifted our earning forecasts, we therefore raise our target price from S$1.45 to S$2.00, based on 12x 2010F PE for mid-cap and integrated plantation players.
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