Indofood Agri

Indofood Agri: 4Q disappoints slightly. Net profit came in 0.9% lower at Rp225.4b, as turnover improvement was offset by a surge in operating expenses, bigger finance expenses and heavy losses sustained by associates.

Revenue climbed 11.8% y/y to Rp4.192tr, mostly due to large increase in CPO sales volume (288,000MT, +23%) partially mitigated by 8% lower CPO ASP as well as small decreases in sales volume in other commodities. Gross profit rose 11.4% accordingly to Rp1.327tr

CPO total planted area rose 2.6% to 246,055ha and mature planted area rose 4.6% to 185,181ha. However, yield was affected by dry weather in North and Central Sumatra earlier in the year. FFB yield dropped from 4.8MT/ha last year to 4.6MT/ha in 4Q14 and CPO yield dropped from 1.1MT/ha to 1.0MT/ha during the same period.

Operational costs surged 21.8% y/y due to marketing and promotion to defend market share, higher wages and increased employee benefits. Furthermore, bottom line was also weighed by higher finance costs as loans and borrowings rose 21% y/y.

Net debt stood at Rp6.232tr and net gearing at 0.26x, substantially higher y/y but an improvement from 3Q14.

Final dividend will be declared at a later date, before end of March 2015.

Looking ahead, management expects CPO demand to remain strong, underpinned by growing consumer markets and a rising middle class, but with keen competition from other producers. Meanwhile, the company continues to be on the lookout for potential acquisitions or JVs for operational and international growth.

Trading at 12.2x trailing P/E, the counter has 6 Buys, 4 Holds and 3 Sells with consensus TP of $0.89