- Indofood Agri Resources (IFAR) (UNRATED) reported that its core net profit fell by 40% YoY to Rp163bil in 1QFY15 due to declines in CPO price and production. The group was also affected by the depreciation of the Rupiah against the USD. IFAR’s 1QFY15 results were below consensus estimates.

- Although the regulation on the export levies has not been signed by the President of Indonesia, we understand that the effect of the export levies has already been priced into the domestic price of CPO.

- Since three to four weeks ago, CPO price in Indonesia has declined by about USD30/tonne. Recall that the export levies are supposed to be USD50/tonne on CPO and USD30/tonne on processed palm products.

- The lower price of CPO is not positive for upstream players and smallholders in Indonesia but favourable for the palm refiners in Indonesia. As such, the refiners have been passing on the benefit of the lower cost of CPO to consumers in the form of lower selling prices for cooking oil products.

- We understand that the 8% YoY fall in IFAR’s FFB production in 1QFY15 was mainly due to an 8% decline in Sumatra and 9% contraction in Kalimantan. We gather that the weather was extremely dry in North and Central Sumatra in 1QFY15. This exacerbated the areas’ FFB yields, which were already reeling from the lagged impact of 1QFY14’s dry weather.

- In Kalimantan, rainfall was normal in 1QFY15. However, FFB yields were still lower in 1QFY15 due to the lagged impact of the drought in 1QFY14.

- Due to the poor FFB production in 1QFY15, IFAR is now guiding for a FFB production growth of 0% to 5% in FY15F instead of 5% to 10% previously. The group would provide a clearer picture when the census on FFB yields and productivity is completed in June 2015.

- IFAR’s production cost per tonne is expected to increase by 12% to 15% in FY15F. The group’s cost of production climbed by 12% YoY to Rp4,700/kg (RM1,329/tonne) in 1QFY15 dragged by higher minimum wage and lower CPO production. Also, IFAR applied more fertiliser in 1QFY15 compared with 1QFY14. This was partly compensated by fertiliser costs, which eased by 0% to 5% YoY in Rupiah terms in 1QFY15.

- New plantings are forecast at 5,000ha to 8,000ha in FY15F. IFAR’s new plantings were 417ha in 1QFY15 compared with 1,158ha in 1QFY14. Sales of IFAR’s seeds are estimated at 9mil to 11mil in FY15F compared with 9.2mil in FY14. We gather that most plantation companies have not been expanding their landbank in Indonesia in recent years due to compensation issues.

Source: AmeSecurities Research - 6 May 2015