Indofood Agri Resources Ltd PT SIMP IPO priced at Rp1,100/share - lower end of range – ALERT - JP Morgan

• IPO priced at Rp1,100 per share: IndoAgri announced that following the conclusion of the book building process, the offer price of PT SIMP’s IPO will be set at Rp1,100 per share. Against the earlier announced targeted range of Rp1,060-Rp1,700 per share, the IPO appears to be priced at the lower end of the range. This implies:

• 1) Valuation: The targeted valuation range of Rp1,060-Rp1,700 was based on 10x-16x FY11E P/E. Hence, this implies that the deal is being priced at 10.4x FY11E P/E, against IndoAgri’s FY11E P/E of 11.8x and the current Indonesia CPO sector average of 12.9x/11.5x for FY11E/FY12E. The implied market cap of PT SIMP would be Rp17.4 trillion (US$2,038 million).

• 2) Proceeds from listing: The proceeds from the IPO would be US$408 million, which would be just sufficient for its planned debt repayment of US$200 million and capex of c.US$200 million. We estimate that net gearing of PT SIMP would reduce from 81% to 25% post-IPO.

• Implications for IndoAgri: Post listing, IndoAgri will own 72% of PT SIMP (from 90%). As IndoAgri owns no other operating assets outside of PT SIMP except for a cash holding at the parent company level of S$230 million. Based on our calculations below, the PT SIMP IPO is valuing IndoAgri at just S$1.41 per share, c.30% discount to its current share price, before factoring in any upcoming M&A that the company may potentially undertake and any holding company discount.