Golden Agri-Resources - CIMB Research 2015-11-13: Forex losses hit 3Q reported earnings

Golden Agri-Resources - CIMB Research 2015-11-13: Forex losses hit 3Q reported earnings GOLDEN AGRI-RESOURCES LTD E5H.SI 

Golden Agri-Resources - Forex losses hit 3Q reported earnings 

  • 9M15 core net profit broadly in line with our forecast but above consensus. 
  • Lower CPO selling prices and production dragged down core earnings. 
  • Reported net profit fell 47% in 9M15 due partly to US$99m forex losses. 
  • Estimated Indonesia palm oil output could fall by 10% in 2016 due to drought. 
  • Maintain Reduce call but raise target price as we roll forward to end-2016. 

9M15 results broadly in line with expectations 

  • Golden Agri’s 9M15 core net profit met our estimate but was above consensus, forming 74% of our FY15 forecast and 83% of consensus. 
  • 9M15 core earnings fell 17% yoy as better refining margins could not offset lower CPO prices. Reported earnings missed due to forex losses of US$45m in 3Q15 and US$98m in 9M15, arising from translation losses on Indonesian assets and FV losses on forward foreign currency contracts. 

Weaker selling prices hurt 3Q plantation contribution 

  • Plantation earnings fell 12% yoy in 3Q15 as the 5% rise in FFB output from its nucleus estates in 3Q15 was not sufficient to offset the 23% yoy decline in ASP achieved for CPO (US$594 per tonne), in line with global prices. 
  • The group revealed that it applied lower fertiliser in 3Q due to the dry weather conditions. This helped to reduce its average production cost for palm products to US$248 per tonne in 3Q. 

Better 3Q refining margins while oilseeds remain profitable 

  • Its palm and laurics business posted stronger 3Q earnings as it benefited from the potential levy implementation as well as its efforts to optimise its downstream business. 
  • Its oilseeds crushing business in China stayed profitable due to positive crush margins. Stocks were higher at 525k tonnes at end-Sep compared to 465k tonnes at end-Jun. 

Indonesia drought to lower 2016 palm oil output 

  • The group maintained its output growth guidance of 0-5%. It also revealed that 70% of its estates were severely affected by the recent Indonesian drought and preliminary indications are that the El Nino-induced drought could cut Indonesia palm oil output by 10% in 2016 and raise CPO prices to around US$700 per tonne. 

Indonesia could consume 2m tonnes biodiesel in 2016 

  • It is building two 300,000tpa biodiesel plants in Indonesia which will be ready by 2016 and will benefit from Indonesia’s biodiesel policy. The group expects Indonesia to consume 2m tonnes of biodiesel in 2016, which is conservative compared to the government’s target of 4m tonnes. 

Maintain Reduce but raise TP to S$0.35 

  • We maintain our Reduce call given the group’s unexciting near-term earnings prospects, stemming from weak CPO prices and slower output growth. However, we have raise our target price to S$0.35 as we roll forward our target price, which is based on historical average P/E of 15x, to end-2016.

Ivy NG Lee Fang CFA CIMB Securities | 2015-11-13
CIMB Securities SGX Stock Analyst Report REDUCE Maintain REDUCE 0.35 Up 0.28