IndoAgri's fresh fruit bunch yields to languish by 6% in FY 2016

It’s still reeling from El Niño’s lashes.

Long after El Niño has officially ended, its impacts continue to dry out Indofood Agri Resources Ltd. (IndoAgri), wilting the group's palm production and sales from the plantation business.

The group posed a 27% year over year (YoY) drop in fresh fruit brunch (FFB) production for 2Q16, dragging crude palm oil sales volume by 31% YoY.

Compared to the previous quarter, 2Q16 posed an unseasonable decline of 1%, indicating a steeper than expected impact of the drought.

According to DBS analyst Ben Santoso, this also indicates the harvesting disruptions due to heavy rainfall in South Sumatra.

"We understand FFB output in South Sumatra had fallen by 40% YoY in 1H16 as a result," he said.

IndoAgri's revenue in 2Q16 saw a 14% slip from the same period a year ago, with its plantation division posting an 18% decline in revenue.

Its steady sugar sales failed to augment the lower volume of crude palm oil (CPO) and palm kernel related products

“But persistent weakness in crude oil prices would continue to have a negative short-term impact on its sugar and rubber ASPs,” the analyst noted.

More so, he stressed that the adverse effects of El Niño may drag on until the end of this year, ultimately lowering the group's FFB yields.

"Geographically, the group’s North, Central and South Sumatra estates, as well as Kalimantan estates saw lagged adverse impact on FFB yields from dry weather in FY15. We expect FY16 FFB yields to decline by 6% YoY – reflecting the impact from El Niño and dilution from newly matured estates," he said.