by DMG & Partners (15 July)
SHARE price down on equity fund-raising talk: Rumours of equity placement may have caused Indofood Agri's share price drop. Bisnis Indonesia purportedly reported on Monday that Indofood Agri is currently looking to sell 10-15 per cent of its shares to raise about US$300 million-US$350 million for the repayment of a bridging loan maturing in Q3 2008.
Following the news release, we have spoken to management on Monday and they have maintained that the company is currently in talks with financial institutions to refinance the 2.4 trillion rupiah (about S$372 million) bridging loan maturing in August 2008 and that the negotiations are currently on track.
According to the United States Department of Agriculture's (USDA) projections, global palm oil consumption for 2008/2009 will grow 6 per cent, to reach 42.7 million tonnes. On the back of tight soybean supply (USDA projects a drop in soybean production from June's forecasts - from 3.1 billion to 3 billion bushels - and projects declining yields - from 42.1 bushels an acre in June to 41.6 bushels) and persistently high crude oil prices (currently around US$145 per bbl), crude palm oil (CPO) prices are likely to remain at favourable levels (currently around RM3,500 or S$1,460 per tonne).
With the global trend of higher consumption and usage of palm oil and the present high CPO price of about RM3,500 per tonne, we believe that Indofood Agri will continue to enjoy the present conducive environment, especially with its high ratio of mature acreage.
As such, we are maintaining our fair value a PE of 14 times. This translates into a potential upside of 57.5 per cent.
-Research Report by DMG & Partners (15 July)
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