Indofood Agri (IFAR, O, PT $1.77): 2Q11 Results: Operational In-Line, With Undemanding Valuation - Credit Suisse

Being a holding company, IFAR deserves to trade at a discount against its operational peers – especially against SIMP, which is trading at 2011/12 PE of 10.3x/11.9x respectively. We continue to prefer SIMP in the plantation sector amid its undemanding valuations and its integrated business model.

· IFAR 1H11 net profit came-in at Rp823 bn (-40% QoQ, +60% YoY), amounting to 58% of our previous 2011 estimates. The strong 1H11 performance is supported by higher CPO and cooking oil production, which amounted to 381k tons (17% QoQ, +18% YoY) and 382k tons (+12% QoQ, +20% YoY).
· Analyst Teddy Oetomo and Agus Sandianto raised IFAR’s 2011-13 earnings by 0.6-4.8%, raised IFAR’s SOTP-based TP to S$1.77/share and upgrade the stock rating to Outperform (from Neutral previously).
· Part of the reason behind IFAR’s stock rating upgrade is valuation, following 17% underperformance of the stock over the past two weeks vs its peers. At present, IFAR is the cheapest plantation stock in our coverage universe with 2011/12 PE of 8.8x/10.5x in 2011/12 vs industry’s average at 13.2x/14.9x respectively.