Cooking oil selling prices easing. An update with management uncovers that IFAR’s selling prices of cooking oil and fats in Indonesia has been revised downwards by 10-15% on average, due to the steep decline of CPO price since its highs in mid July. We have adjusted our FY09 valuations to take into account a 10% decline in margarine’s and a 15% decline in cooking oil’s selling prices, from 9M08 average selling prices.

Capex plans under review. During the update, management has said that they are maintaining their target to expand oil palm planted area to 250,000 ha by end 2010. Assuming no new plantings were carried out in 4Q08, this works out to approximately 38,000 ha of new plantings per year in 2009 and 2010. However, in view of the current credit tightening environment, management has also indicated that they are reviewing non-essential capital expenditure currently.

Downgrade to neutral, new fair value of S$0.51. We are maintaining our CPO price assumption of RM1,500/tonne for FY09 (CPO futures for Jan 09 delivery is RM1,675/tonne) and a 10% YoY CPO production growth per management’s guidance. However, taking into account the reduction in selling prices for cooking oil and margarine, FY09 earnings has been revised downwards by 48% to IDR802b. Factoring in a P/E of 7x our FY09F earnings (7x being the average of 10-year historical low P/E valuation for Indonesian and Singapore listed plantation companies), we derive a new target price of S$0.51 (S$1.12 previously) and downgrade our call on the stock to neutral.