SINGAPORE (May 4): DBS has downgraded Indofood Agri Resources to “hold” from “buy” after its output growth guidance was cut to “flat” and FY16 forecast earnings revised downwards.

In a Monday report, analyst Ben Santoso said  IndoAgri’s South Sumatra estates were hard hit by El Nino, with FFB production dropping by 20% q-o-q due to not only last year’s dry weather; but also heavy rains, which hampered fruit evacuation in 1Q16.

Based on the fruit census undertaken in Feb-16, the group has lowered its production growth guidance to zero from 0-5%. IndoAgri is expected to recognise 14.3k ha of new maturities this year, which should mitigate the drop in FFB yields.

DBS adjusted IndoAgri’s own FFB output growth to 0.9% from 2.8% although this resulted in only a small change in its CPO production forecast of 1 million tonnes. But to account for the strong Edible Oils & Fats volume, it raised the group’s refined CPO volume growth to 7.5% from 5% – which required higher outside CPO purchases.

“With no further potential upside, we downgrade our rating to HOLD. Notwithstanding potentially higher output in 2H16 and higher anticipated CPO ASP in subsequent quarters, we believe these are mostly priced in,” says Santoso.

At 1.51pm, shares of IndoAgri are down 4.76% at 50 cents.