Indofood Agri Resources plagued by lower CPO prices, higher costs

Core net profit tumbled 75% in 2Q.

According to CIMB, 2Q13 core net profit plunged 75% yoy and 40% qoq, largely because of lower CPO prices (-18% yoy), weaker FFB production (-9% yoy) and higher production costs.

Here's more:

The decline in nucleus FFB production was due to weaker production recorded by its estates in South Sumatra. Production costs were driven up by rising wages and new mature palm oil areas.

Earnings from the edible oils and fats (EOF) division improved yoy in 2Qdue to the higher refining margin. However, profit from EOF was weaker qoq, following its decision to cut cooking oil and margarine prices by 10% in Apr 2013.

Challenging prospects. We expect 2H earnings to benefit from seasonally stronger palm production and higher sugar contribution from Indonesia. The group commenced the sugar harvest season in May and projects most of its sugar sales to be realised in 2HCY13.

However, this may be partially offset by potential losses from its newly acquired sugar assets in Brazil due to current low international raw sugar and start-up costs. Also, the pick-upin 2H FFB production may not be sufficient to cover weak production in 1H.