Indofood Agri Research Report

by CIMB-GK (15 Aug)

H1 2008 core net profit (excluding biological gains) of 882 billion rupiah (S$135 million) accounts for 60 per cent of our full-year estimate and 46 per cent of consensus. We consider the results to be in line with our expectation but below consensus.

This is because we expect a weaker H2 from lower crude palm oil (CPO) selling prices and higher fertiliser costs. As expected, the group did not declare any interim dividend.

Key surprises in Q2: Both cooking oils and fats and commodities performed above expectations due to better-than-expected sales volume and profit margins. The group gained market share in the branded cooking oil segment as well as benefited from the rapid growth of supermarket chains in Indonesia. Commodities posted stronger earnings thanks to higher processing volume and more timely purchases of raw materials.

All divisions turned in higher earnings. Q2 2008 core net profit grew 51 per cent y-o-y, thanks to higher selling prices, better earnings from its downstream divisions as well as additional contributions from London Sumatra. To recap, the group started consolidating LonSum's results from Nov 1, 2007. Core net profit fell 37 per cent q-o-q due to a higher effective tax rate and higher minority interests.

Raising FY2008-10 EPS forecasts by 3-6 per cent. We have raised our earnings estimates by 3-6 per cent for FY2008-10 to account for the better contributions from cooking oils & fats and commodities. Our new forecasts assume lower earnings in H2 2008 due to weaker CPO prices and higher estate costs.

Our target price has been raised after our earnings revisions, still based on 10x forward PE. The share price has corrected by 34 per cent in the last month. As such, it now offers 19 per cent upside to our revised target price, which is in line with expected market returns, coupled with the better performances from its downstream units.

-Research Report by CIMB-GK (15 Aug)