Indofood Agri Resources reveals earnings from sugar division

The sugar division posted a profit of Rp12b in the second quarter through the sale of 11,000 tonnes of sugar.

CIMB noted:

At its 2Q results briefing, the group revealed that its sugar division posted a profit of Rp12bn in 2Q through the sale of 11,000 tonnes of sugar. The group achieved average selling price of Rp9,000/kg for its sugar, which is higher than the domestic floor price of Rp8,100/kg.

It expects stronger sugar contributions in 2H when harvesting season is in full swing. For the full year, it targets to produce around 70,000 tonnes of sugar.

The group also explained that the weaker edible oils and fats margin in 2Q of 3% was due partly to the provision for declines in inventory values for its refineries by-products amounting to Rp42bn,but this may be reverse if it can sell the stock at higher prices.

The group also guided for higher costs of production by 15-20% in 2012 due to higher fertiliser usage and prices as well as higher labour costs. We gathered that fertiliser costs went up yoy because fertiliser applications at some of its estates were delayed in the previous year. It maintained its target output growth of 5-10% for the full year.

We are negative on the guidance for higher cost of production at its estates. The good news is that fertiliser costs have stabilised hoh, while sugar and cooking oil contributions are expected to be stronger in 2H.

The group may be able to claw back some of the provisions made on its inventories if it can successfully sell the stocks at higher prices. We are cutting our earnings forecasts for Indofood Agri by up to 17.5% to account for higher operating costs and in line with our earnings downgrade for SIMP.