SIMP and Brazil deliver in 4Q
Indofood’s FY13 earnings trumped our forecast by 38% and were 30% higher than consensus, thanks to an unexpectedly strong showing by 72.6%-owned SIMP and the 50%-owned sugar associates in Brazil. 4Q core net profit jumped 88% yoy due to higher selling prices achieved for its palm products and sugar contributions from Brazil. We are raising our EPS by 10-20% to reflect our earnings upgrade for SIMP and higher sugar contributions. Our SOP-based target price rises to S$0.89 to account for our target price upgrade for SIMP. We upgrade the stock from reduce to Hold as we are more optimistic about the prospects for SIMP following the strong 4Q results. We prefer SIMP for direct exposure to the assets.Stronger plantation earnings
Indofood Agri's 4Q core net profit rose 32% yoy and 107% qoq as stronger plantation earnings and maiden sugar earnings from Brazil more than offset the drop in contribution from edible oils and fats. The key surprises in 4Q were stronger-than-expected FFB production (subsiding social issues at its estates),
ASPs for its palm products (weaker rupiah) and higher contributions from its sugar assets in Brazil (higher sales volumes). Reported net profit was lower as a Rp62bn gain on biological assets was wiped out by the booking of Rp108bn forex loss due to rupiah’s weakening against US$. For the full year, core net profit fell 37% due mainly to higher estate costs and poorer downstream contributions.
Key takeaways from teleconference
The group is targeting 5-10% FFB output growth and flattish cost per tonne due to lower fertiliser costs and improving yields. It expects 15k-20k ha of estates to come into maturity in 2014. It guided for 5-10% growth in the sales volume of its branded cooking oil products and profit margins of 3-5%. The group plans
to plant 10k-15k ha of oil palms and 2k-3k ha of sugar estates in 2014. This is higher than the 9.8k ha of new plantings achieved for oil palm in 2013.
Upgrade to Hold
We are upgrading Indofood Agri from reduce to Hold as we are more optimistic on its earnings prospects due to subsiding social issues at its estates, better cost management and positive results from its Brazilian sugar assets.
........
source: CIMB dated March 2, 2014
