UOB cuts target on IndoAgri to $1.95; keeps buy

Stock Name: IndoAgri
Company Name: INDOFOOD AGRI RESOURCES LTD.

Research House: UOB KayHian

Price Call: BUY

Target Price: 1.95

UOB Kay Hian has lowered its target price on Singapore-listed palm oil producer Indofood Agri Resources (IndoAgri) (IFAR.SI) to $1.95 from $2.65 but maintained its buy rating.

IndoAgri raised net proceeds of around 3.35 trillion rupiah ($483.3 million) from the listing of its unit Salim Ivomas Pratama (SIMP) (SIMP.JK) on the Indonesia Stock Exchange. It offered 3.163 billion shares at 1,100 rupiah each.

Around 51% of the proceeds will be used to reduce debt, 39% is earmarked for plantations such as expanding new planting and building processing mills, and 10% for the edible oils and fats division.

UOB said it had cut its net profit forecast for IndoAgri by 11.2% to 1.451 trillion rupiah for 2011 and by 15.2% to 1.625 trillion rupiah for 2012 to factor in the reduction of IndoAgri’s stake in SIMP to 72% from 90% after the listing.

The brokerage also said that the strong recovery in crude palm oil supplies from Indonesia and Malaysia is likely to limit the upside in prices in the next 10-12 months.

However, UOB said it expects IndoAgri’s crude palm oil production to grow 9% year-on-year in 2011, compared with a 3% fall in 2010, due to better weather as well as more mature areas coming on stream.

IndoAgri plans to complete two palm oil mills in Kalimantan and Sumatra in Indonesia, on top of expanding its edible oils and fats division, UOB said, adding that potentially lower debt will give the company more flexibility to pursue growth.

At 9:45 a.m., IndoAgri shares were up 0.6% at $1.61 on a volume of 1.2 million shares. The stock has fallen more than 40% so far this year.