Indofood Agri Resources continues to face headwinds

Like delayed harvesting and mill completion.

The most recent 2Q13 results for Indofood Agri Resources disappointed analysts, as delayed sugar harvesting and delayed
mill completion dragged profitability, according to DBS Group Research.

The next half of the financial year promises little respite, with production output expected to drop significantly as management does not expect significant recovery during the period.

Here's more from DBS:

Disappointing 2Q13 results. IndoAgri reported 2Q13 net profit of Rp65.9bn (-74% y-o-y and -38% q-o-q), coming in at just a third of our mid-range expectation of Rp226 bn. This brought 1H13 earnings to only 23% of our initial full year expectations and 20% of consensus. Edible Oils & Fats (EOF) division booked 16% q-o-q higher revenue despite c.10% price cut in Apr13, as sales volume expanded 18% qo-q. However, higher A&P during Ramadan had sequentially halved 2Q13 EOF EBITDA to Rp106 bn from Rp201 bn in 1Q13. While 2Q13 Plantation EBITDA rose to Rp311 bn from Rp243 bn in 1Q13, delayed sugar harvesting and delayed mill completion (causing 53k MT of unprocessed FFB to be sold) dragged profitability. Own 1H13 FFB output of 1.265m MT (-5% y-o-y) made up c.39% of our initial FY estimate, however the group does not expect significant recovery in 2H13. We understand FY output may only reach c.2.4m MT (vs. our initial forecast of 3.2m MT).

Further inventory drawdown. 2Q13 revenues eased 11% y-o-y (+8% q-o-q) to Rp3,357.9 bn, as 2% y-o-y rise in CPO sales volume only partially offset the 18% y-o-y drop in CPO ASP. There was a 50k MT drawdown in CPO ending stock during the quarter. As at end Jun13, IndoAgri was left with 37k MT of CPO stock (roughly half-month output).

FY13F-15F earnings cut by 19-33% on lower EOF profit, lower FFB output, and FFB sale. We also raised harvesting, processing and fertiliser costs, as we impute higher YTD numbers. Accordingly, we cut our DCF-derived TP to S$0.81 (WACC 15.5%, Rf 8.8%, ERP 6.9%, Beta 1.3, TG 3%).

HOLD rating maintained. Based on our revised TP, there is only 1% upside from current level. For better potential
returns, we recommend investors to switch to BAL and FR.

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