Indo Agri has announced a “noncash” writedown of Rp663 billion, or around S$85.6m, arising from the changes in fair values of biological assets for 4Q08 and FY08. To recap, the reporting of gain or loss arising from the changes in fair values of biological assets is in accordance with SFRS 41 of the Singapore tax code. We emphasize that the write-down is non-cash and nonoperational in nature. IndoAgri expects to remain profitable in FY08.

IndoAgri assesses the valuation of its biological assets on a half-yearly basis based on the valuation reports prepared by an independent valuer. The valuations are prepared based on the discounted net future cash flows of the underlying plantations, with determinants such as projected CPO selling prices and discount rates.

Over the past 3 years, Indo Agri has booked almost Rp. 800bn in gains to biological assets, in tandem with rising CPO prices. In fact, the carrying value of its plantations in its balance sheet had already been revalued upwards even prior to its listing on the SGX via its reverse takeover. In the current environment where CPO has fallen by half over the past year, it is only to be expected that IndoAgri’s plantations should be revalued downwards in line with this CPO price trend.

We are adjusting our reported net profit forecast downward to Rp.1,223.9bn for FY08, from Rp. 1,900.3bn previously. Naturally, there is no change to our core net profit forecast, which strips out the effects of non-cash biological gains and losses. This remains at Rp.1,551.3bn for FY08. IndoAgri releases its FY08 results on 27th February. We maintain our Buy call and target price of S$1.65.