Indofood Agri Resources Ltd: Catalysts in sight

Indofood Agri's (IFAR) 1Q11 earnings came in above street's and our expectations at IDR514.3b (+66% YoY) on the back of higher ASPs and sales volume for palm products. We revise FY11 and FY12 earnings upwards by 4.8% and 5.2% respectively, on the back of stronger than expected performance of rubber and seed sales. The stock had been sold down on concerns over a potential 18% shareholding interest dilution and the potential loss of investors' interest in IFAR as an entry point into the agri sector once PT Salim Ivomas Pratama (PT SIMP) is listed. However, there are re-rating catalysts in sight such as earnings accretive acquisitions post PT SIMP's listing, as well as the maiden contribution from its sugar business commencing 2Q11. Maintain BUY with a new TP of S$2.79, based on 15x FY11 EPS and a CPO price assumption of RM3,200/tonne.

1Q11 results above expectations. 1Q11 earnings (+66% YoY) came in above ours and street's expectations at IDR514.3b. This was mainly on the back of a 38.6% increase in sales with higher ASPs and sales volume, which boosted gross profit margin to 45.9% this quarter, versus 37.8% a year ago.

1Q11 FFB production strong, full recovery expected. 1Q11 FFB nucleus production was strong, with YoY growth hitting 12.8%, on the back of a production recovery in its South Sumatra estates and additional immature area coming into maturity. With no adverse rainfall since the beginning of the year and 1Q11 CPO production volume making up 22.6% of our FY11 estimates, we believe IFAR is on track for a production recovery.

Listing of PT SIMP likely to proceed; acquisitions in the pipeline. With only one more regulatory hurdle from the Indonesia authorities to cross, the listing of PT SIMP is likely to go through. The commencement of its offering period is likely to be around end May and the listing of the offer shares on the IDX is targeted to be on 9 June. To recap, IFAR intends to reduce its gearing with the repayment of Lonsum's loans and is committed to spend S$230m acquiring new businesses on IFAR's level (with both upstream and/or downstream activities and may be outside Indonesia since PT SIMP has the right of first refusal within Indonesia).

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