SINGAPORE (March 2): DBS Vickers Securities continues to keep its “hold” recommendation on Indofood Agri Resources while lowering its target price on the stock by one cent to 56 cents.

In a Thursday report, analyst Ben Santoso says he expects the agribusiness company’s earnings to recover meaningfully in FY17 thanks to improving fresh fruit bunch (FFB) yields, maturing estates and relatively stable palm oil prices.

Santoso notes that 4Q16’s profit after tax (PAT) of IDR 417.3 billion ($44 million) was ahead of what DBS had anticipated, principally on the back of lower cost of sales and general & administrative expenses.

With the majority of Indofood Agri’s output coming from its Sumatra estates and based on 4Q16’s q-o-q output recovery, DBS is anticipating FFB yield recovery to continue into 1Q17 to deliver positive y-o-y growth.

The group’s FY17-18F earnings is estimated to remain relatively unchanged, however, as the analyst believes the group’s slightly better average selling price (ASP) will be offset by lower-than-expected contributions from associates.

“We expect the group’s FY17F edible oils & fats segment to maintain its current EBITDA margin on continued shift towards branded packaged cooking oil, launch of new products and expansion of capacity to cater to expanding demand. The group is due to increase its refinery capacity towards 1.7 million metric tonnes (MT) per annum by end of 2017,” adds Santoso.

The analyst also forecasts the group to report stronger volume growth, mainly from new maturities.

At 3.45pm, shares of Indofood Agri are trading 0.96% higher at 52 cents.

Could a strong earnings outlook lead Indofood Agri to surprise on the upside?

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Could a strong earnings outlook lead Indofood Agri to surprise on the upside?

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