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IndoAgri Q1 net profit up 70% on higher CPO prices

JAKARTA (Rambu Energy) – SGX Main board-listed Indofood Agri Resources Ltd (IndoAgri), a diversified agribusiness group and manufacturer of edible oils and fats, posted first quarter 2014 attributable net profit at S$20 million (Rp 182 million), up 70 percent year-on-year (yoy) from $11 million (Rp 107 billion). The surge in net profit was in line with stronger revenues.

In the first quarter, the company posted revenues of Rp3.2 trillion (S$341 million). The revenues boosted attributable profit in commodity prices for agriculture crops and foreign currency gains.

The first quarter operating profit registered a 90 percent increase on strong profit contribution from the Plantation Division and foreign currency gains of Rp86 billion (S$9 million).

The increase was partly offset by shares of losses from an associate company and a joint venture.

CEO and Executive Director of IndoAgri Mark Wakeford said the company achieved a strong set of first quarter results contributed strongly by the company’s plantation division.

On the production front, the company booked fresh fruit bunches (FFB) nucleus production of 706,000 tons in the first quarter, up 12 percent yoy on higher production from South Sumatra and Kalimantan.  Its CPO production grew 15 percent yoy to 210,000 tonnes on higher nucleus production and higher purchases of FFB from external parties.

“Prices of CPO and Palm Kernel have recovered strongly from Q1 2013, resulting in our selling prices for CPO and Palm Kernel rising in the quarter by 43 percent and 107 percent respectively,” Wakeford said in a statement.

The company’s edible oils & fats division also reported higher revenue of Rp2.3 trillion, up 19 percent yoy on higher average selling prices for edible oil products and higher sales volume of cooking oil.

“In addition I am pleased to announce we have recently increased our RSPO Certified CPO volume by 43,000 tons annually, with an additional two estates in Riau having passed the RSPO certification process. This now increases our annual Certified Sustainable Palm Oil (CSPO) production to 291,000 tonnes,”   Wakeford said.

Industry Outlook and Future Plans

IndoAgri views that with the lingering effects of an economic slowdown, 2014 is anticipated to be another challenging year for agriculture companies. Politically, it is a pivotal year for Indonesia as the country prepares for its next Presidential Election. Nonetheless, the world economy is showing signs of an upturn, led by sooner-than-expected recoveries in the developing countries and especially the US.

In the first quarter 2014, CPO prices (CIF Rotterdam) recovered to an average of US$904 per ton compared to averaged US$857 per ton in 2013.

The recent CPO price increase was supported by seasonally lower production in the first half of the year and concerns over the dry weather which may affect the palm production in the near term. Nonetheless, Indonesia has become one of the largest consumers of palm oil together with China and India given its vast and growing population base of over 240 million people.

“We also expect the higher biodiesel blending mandate of 10%, announced by Indonesia’s government in September 2013, to sustain domestic demand growth for palm oil products,” Wakeford noted.

As for rubber, the company encountered pressured rubber price. The higher level of production in Thailand and Indonesia in 2013 has sustained pressure on rubber prices (RSS3 SICOM), which fell to an average of US$2,251 per ton in Q1 2014 compared to averaged US$2,795 per ton in 2013.

According to a leading agriculture research firm, LMC International, rubber production is expected to slow down in 2014 as producers respond to lower prices.

The near-term to medium-term demand is expected to remain subdued due to slowdown in the global GDP. However, the long-term outlook for rubber remains upbeat supported by healthy demand from tyre-makers, automotive industries and rubber goods manufacturers in developing markets, particularly China. (*)

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