Golden Agri - Improving Outlook For 2017
- Golden Agri expects to see a marked recovery in FFB output in 2017, coming from a recovery in yields post El Nino.
- On the downstream front, it expects to see improved refining margins as selling prices are on a rising trend.
- We expect earnings in 2017 to more than double on the back of these factors and the lack of further deferred tax asset recognitions. No change to our BUY recommendation with a slightly lowered TP of SGD0.45 (from SGD0.50, 12% upside).
- We continue to like the company for its inexpensive valuations and integrated operations, which would bode well for it in volatile price conditions.
- Golden Agri-Resources (Golden Agri) saw a marked FFB output recovery of 33% QoQ and 10% YoY in 4Q, bringing FY16 FFB output to -11% YoY (better than management‘s original guidance of -15% to -20% and our -16% YoY forecast).
- For FY17, Golden Agri expects FFB output to recover significantly by at least 15-20% YoY, as it expects a strong pickup post-1Q17. We maintain our more conservative +12% projection for FY17 for now;
- iIt intends to replant 10,000ha of land in 2017 (up from 7,300ha in 2016). Post-FY18, it is likely to ramp up replanting efforts more aggressively.
- Golden Agri saw a slight reduction in its palm and laurics margin to 2.5% in 4Q16 (from 3.7% in 3Q16). The company hopes to be able to bring margins back to above 3% going forward on the back of increased prices.
- In FY16, it recognised deferred tax income of USD304m, coming from a change in accounting policy to take advantage of a lowered tax rate for revaluation on assets in Indonesia.
- Going forward, Golden Agri should not see any further deferred tax asset recognitions, although effective tax rates should be lowered due to the new accounting treatment.
- After adjusting for FY16 results, we tweak our forecasts downwards slightly by 3-4% for FY17-18 and introduce FY19 forecasts.
- We maintain our BUY recommendation on the stock, with a slightly lowered TP of SGD0.45. This implies 19x 2017 P/E and an EV/ha of USD11,000, which is a the lower end of its peers’ range of USD10,000- 20,000/ha.
- It is currently trading at 16x P/E which is at a discount to its regional peer average of 19x.
- Being one of Singapore’s highest beta plantation stocks, it would bode well for it in periods of market uncertainty and price volatility.