Brokers' take

Indofood Agri Resources
June 2 close: S$2.47
DMG & Partners Securities, June 2

INDOFOOD Agri Resources (Ifar) is one of Indonesia's leading oil palm planters and producers of crude palm oil (CPO), producing over 312,000 tonnes in FY2007 and 170,000 tonnes in Q1 2008. It has about 165,853 ha of planted area, with a mature area of 122,151 ha. Ifar's total land bank is 406,519 ha (excluding plasma) as at end- March, up from 237,262 ha before the acquisition of London Sumatra.

Outlook for the palm oil industry is still positive. First, demand for CPO worldwide has remained strong. Consumption grew by more than 28 per cent, from 28.2 million tonnes in 2003 to 36.3 million tonnes in 2006.

Second, prices of CPO have been soaring as under-cultivation in the past has resulted in supply lagging demand. CPO prices rose to a recent high of US$1,395 per tonne in March this year.

About 74 per cent of its planted area is classified as mature and 49 per cent is in the prime age category (seven to 20 years). In addition, another 10 per cent of its planted area will be entering its prime age within the next three years. We believe Ifar's age profile of trees favourably positions it to enjoy the benefits of the current high CPO prices.

With the global trend of higher consumption of palm oil and the present high CPO prices, we believe that Ifar is in a sweet spot for growth, especially with its high ratio of mature acreage.

Using a PE of 14 times that is in line with Singapore and Malaysia plantation companies, we value Ifar at S$3.34, translating into a potential upside of 33 per cent from its last closing price of S$2.51.

We are initiating coverage on Ifar with a 'buy' rating. BUY