Indofood Agri

Indofood Agri: 3Q14 results largely in line, with net profit inching up 1.6% to Rp124.8b taking 9M14 net profit to Rp533.3b (+80.4%). Overall gross margin dipped slightly to 25.4% from 27.2%. Revenue for the quarter was up 17.1% to Rp3.6t, led by both the plantations and edible oils & fats (EOF) segment. Plantations revenue rose 31% to Rp2.7t while EOF revenue was up 7.0% to Rp2.3t, led by higher sales volume and average selling prices of palm and edible oil and fat products. Bottom-line was weighed by a 10.7% rise in general and admin expenses to Rp276.1b, due largely to higher staff headcount and wages, while other operating expenses rose 27.8% to Rp91.4b as a result of net movements in loss from changes in amortised costs of plasma receivables. Associate losses widened to Rp20.5b from Rp 16.1b, due to losses recognised by the group’s sugar business in the Philippines, while JV contributions fell 11.6% to Rp44.4b attributable to CMAA, a local sugar and ethanol producer in Brazil, which saw lower profits due to the timing of shipments of raw sugar. Operationally, production for CPO was up 26.0% to 264,000 MT and Palm Kernel (PK) rose 25.0% to 60,000 MT, driven by higher FFB production at 1,216,000 MT (+24.0%). CPO extraction rate improved to 22.1% (3Q13: 21.6%) while PK extraction rate was flat at 5.0%. CPO average selling price (ASP) during the quarter was at Rp7,917 per Kg (+7% y/y, -7% q/q), while PK ASP was at Rp4,565 per Kg (+28% y/y, -22% q/q). Going forward, management highlights that the higher seasonal palm oil production in the second half of the year and the anticipation of bumper soybean crops from US and South America have put significant pressure on commodity prices. On year-to-date basis, the average CPO price was US$853 per ton versus the average of US$857 in 2013. On a positive note, demand for palm oil remained resilient supported by competitive CPO prices versus other competing vegetable oils. The group expects the domestic demand for palm oil in Indonesia to remain strong given its vast and growing population base. IndoAgri trades at 16.6x annualized 9M14 P/E and 0.77x P/B.