Indofood Agri Research Report

by DMG & Partners (26 June)

KNEE-JERK reaction to higher crude palm oil (CPO) export tax and weaker Malaysian CPO export data: Indofood's share price fell on Wednesday, together with the other Singapore-listed palm oil companies, when news of higher Indonesian CPO export tax levied for July and weaker Malaysia CPO export data broke.

Indonesia's trade ministry raised the base price used to calculate the CPO export tax from US$1,105 per tonne in June to US$1,144 per tonne in July. The tax rate on CPO shipments will be raised from 15 per cent to 20 per cent accordingly.

According to the independent surveyor, Intertek Agri Services, Malaysia's palm oil exports for the period June 1 to 25 declined 9.4 per cent from the prior month to 899,300 tonnes. For the same period in May, Malaysia exported 993,100 tonnes of palm oil.

Selldown overdone, outlook still positive: We are of a view that the sharp selldown is unwarranted as we have already factored in the higher tax rate in our earnings forecasts. In addition, the macro outlook remains positive. According to the United States Department of Agriculture's projections, global palm oil consumption for 2008/2009 will grow 6 per cent, reaching 42.7 million tonnes.

On the back of forecast growing demand of palm oil from India and China and persistently high petroleum prices, CPO prices are likely to remain at favourable levels, currently at around RM3,553 (S$1,491) per tonne.

With the global trend of higher consumption and usage of palm oil and the present high CPO price of about RM3,553 per tonne, we believe that Indofood will continue to enjoy the present conducive environment, especially with its high ratio of mature acreage.

This being so, we are maintaining our PE of 14 times (in line with the Singapore and Malaysian plantation companies). Although Indofood's share price has risen 11.7 per cent since our initiation on the platter as at end-May, our fair potentially translates into an additional upside of 29.5 per cent.

-Research Report by DMG & Partners (26 June)