Why I Bought Indofood Agriculture At Its 7 Year Low and 1.6% Dividend Yield

Just a few weeks ago, I have mentioned in my 2017 Updates that I have bought some units of Indofood Agri (5JS) and concentrated about one-fifth of our portfolio. Half of this amount of investment was from me, and BF decided to jump in together with me on the other half.

While we were discussing about our buy, BF asked me about the dividend yield. He uses dividend yield as a gauge to know how much “interest” he is earning from his investment. When I told him that the dividend yield was only 1.6%, he obviously had some problems accepting it because his REITs were already yielding 6-7% on average in distributions.

Of course, dividend yield is just one of the reasons why I buy a stock. The more tantalizing reason was because this business was reasonably priced.

I explained that we should be glad that Indofood Agri is giving out some dividends. Though, they could do slightly better by committing to a fixed dividend policy.

And why did I say that the price is right? It was harder to explain to BF, but I hope you get the reasons why in this blog post.


1) Low Book Value

I dug out the figures from their 2016 annual report and did some manual calculations for IndoAgri’s net asset value.  Turns out, its P/B ratio is in the range of 0.3 to 0.4. What this means is that in an event that Indofood Agri liquidates all her assets and clear their liabilities, the amount that the company will be left with will be more than what I’ll be paying for by 3 to 4 times. A discount of 65%? Yum.

2) Acquisition of treasury shares

In 2015, Indofood Agri acquired 21,378,000 treasury shares in the share capital of the Company through the open market. The shares were purchased for Rp151.9 billion which is roughly 70 to 80 cents per share after accounting for currency exchange. Now, it is usually a good sign when the company buys back their own shares, as it would mean that they are reinvesting their capital back into the company, or because the market has shown that their shares are discounted.

Of course, this happened almost 3 years ago and the price still continued to drop. Would I consider this a good thing? Yes, because it just means that they are even more undervalued now, and I am paying about half of the price that they have paid initially for the buy back.

3) Cash hoarding

Cash is awesome. Cash is queen. Cash can act as a form of insurance against recession. And how much cash is the organization holding? You’d be amazed. About 18 cents per share. That’s 50% of my nibble at 37 cents. I’m basically getting half of the company for free. Is that a good deal or a great deal?

With more cash, this can lead to more options for the company. Well, they could do another buy back, or perform other forms of acquisition. They could use it to clear their debt. Or maybe, just maybe, they could give out special dividends to us. It is good to note that their free cash flow has been also improving with most of the the cash coming from strong operational activities and subsidiary income. Net increase in cash for the past 2 years.


Having said the top 3 reasons why I got vested in the stock, there are still some drawbacks getting vested. For example, earnings are heavily concentrated in Indonesia, and are subjected to currency losses. Also, their business is inventory heavy and you would see that their net profit margin is only at a mere 3.6%.

Despite also having reported higher earnings in 2017, the stock price still continued to fall rather significantly. It would seem that Mr Market doesn’t like this counter very much and has depressed its price.

Now, I remember the sting of my bleeding counter in CDG and having paying a premium for its price. It is my due diligence to never repeat that mistake again and make sure that I know now that the price that I am buying Indofood Agri for is the right one.

Only time can tell. But in the past 45 days of holding this stock, it has since appreciated 10%. I am lucky, but I don’t know when this luck will run out. I am hoping that the other shareholders and I would be greatly rewarded once its true intrinsic value is revealed. I believe that any kind of news pertaining to the organization wanting to improve returns with shareholders will allow Mr Market to take a second look at this counter again.

Thanks for reading!

Miss Niao xoxo

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Author: Miss Niao

Hello! I blog about financial matters and things that average people can do to have a better retirement. I want to inspire people to take control of their money and have a better understanding about it. If you are interested to know more, follow me @ missniao.wordpress.com! :)

23 thoughts on “Why I Bought Indofood Agriculture At Its 7 Year Low and 1.6% Dividend Yield”

  1. seems like you are valuing a commodity stock based on primarily quantitative factors eg discount to book value, large cash hoard..

    such valuation method may not be suitable for a commodity company that is largely cyclical and dependent on commodity prices.. could be more suitable for asset based company or capital-heavy units such as property, steel stockists, industrial outfit..

    you may still take a quant approach to your investments.. but do spread it out over many companies to diversify as some companies are bound to fail.. they are cheap for a reason. diversify helps reduce the risks..

    happy investing!

    Liked by 1 person

    1. Ah, macroeconomics. I haven’t touched on this topic but I think I should now that you mention it, since the core business is highly affected by that. Will continue studying. Thanks for the advice!

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  2. Hi there, I am drawn to this post because I am currently invested in a palm oil related stock as well, Global Palm Resources. A commodity stock is a rather tricky one as it involves the weather as well as politics. For the political side of it, EU has recently been exploring the option of banning palm oil from 2021. India has recently raised the import tax of palm oil to support its domestic market. However, through all these politicking, I still hope the commodity will see some daylight. Maybe towards the middle of the year, where the FDA ban of the use of trans fat in food products come into effect, the importance of palm oil will hopefully be raised. Then again, there is always soy bean oil in the backyard of USA. Will wait and see but don’t hold the breath for too long.

    Liked by 1 person

      1. Hi there, just to provide some belated updates for the palm oil industry in Indonesia. You can track the ongoings of this industry via GAPKI (Indonesian Palm Oil Association). There is an update which provides a summary of 2017 and the prospects of 2018. https://gapki.id/news/4140/refleksi-industri-kelapa-sawit-2017-dan-prospek-2018

        An interesting data from the above link shows that Indonesian exports of palm oil is actually more than domestic consumption.

        You can also obtain rather updated palm oil figures (CPO Rotterdam) via this website called “Palmoilanalytics”.

        Hope the above helps.

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      2. Thank you very much! Will check it out. I am surprised because in their annual report, most of their revenue is domestic. But anyway, I guess the figures contribute to the entire palm oil industry.

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      3. Hi just read about this piece of news from the Palm Oil Analytics website “E.U implements annulment of anti-dumping duties” (22 March 2018). I could not verify the source of this piece of news but if it is really going on, it will be a good piece of development for palm oil. Between, I suspect there may be some protectionist activities going on as I think the alternatives to palm oil (other than soybean) are safflower oil & canola oil… both of which are produced in Europe. For the increase in import tax in India, I suspect it has more to do with Modi favoring the farmers (and hence winning their votes) in the upcoming elections. Well, I did not know that commodities come with some much baggage lol. We learn along the way I guess. Thanks for reading.

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  3. Even if the majorshareholders decide to privatise the company, they do not give a hood to PB values. Look at all those companies when they privatised, they go for the Low, with some ten % sweetener….

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    1. Ah, if privatization does occur, they would have to make an offer to the market. On my standpoint, I’m betting that the offer would be at least close to the price that I have paid for. But of course, we wouldn’t know if that would happen.

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  4. Hi Miss Niao, really like your analysis here. It certainly sounds like a compelling case with such a discount to book value, including that large chunk of cash on the balance sheet! But Jacki also makes a good point above – hard to know what the expectations are for the prices of their product, but hopefully the Market is being overly pessimistic and realizes it’s higher intrinsic value in time!

    PS I visited your beautiful country of Singapore for the first time last year and absolutely loved it!

    Liked by 1 person

    1. Hello mate!
      Thank you for dropping by. Will be adding you to my blogroll if you don’t mind – I am anticipating great content from your blog.
      If you drop by next time, drop me an email! I would love to meet you and your family.

      Like

      1. Thanks Miss Niao, I’m thrilled to be on your blog roll, much appreciated! Am hoping for another opportunity to return to Singapore in the near future, will be sure to drop you a line!

        Liked by 1 person

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