Golden Agri-Resources - OCBC Investment 2015-11-13: Maintain HOLD with S$0.34 FV

Golden Agri-Resources - OCBC Investment 2015-11-13:  Maintain HOLD with S$0.34 FV GOLDEN AGRI-RESOURCES LTD E5H.SI 

Golden Agri-Resources: Maintain HOLD with S$0.34 FV 

 9M core NPAT met 71% of FY forecast 
 Near-term outlook still challenging 
 Bargain hunting around S$0.30 or better 

3Q15 earnings starting to show improvement 

  • Golden Agri-Resources (GAR) reported 3Q15 revenue of US$1574.0m, down 15% YoY, hit by lower CPO prices (ASP down another 28% from a year ago quarter); but mitigated somewhat by slightly higher production volumes (+2.6% YoY). 
  • But thanks to better performance in China, EBITDA improved 28% to US$128.2m. 
  • Reported net profit also jumped 261% to US$15.7m, while estimated core earnings (excluding forex losses and exceptional items) surged 362% to US$61.2m. 
  • 9M15 revenue though slipped 15% to US$4958.3m, it met about 73% of our FY15 forecast, while reported net profit tumbled 47% to US$71.7m; estimated core earnings was down 3% at US$170.6m, or about 71% of our full-year forecast. 

Still not out of the woods yet 

  • Having said that, management remains somewhat cautious about the near-term outlook of the industry, noting that its operating environment will be affected by the prices of CPO and competing seed oils, climatic conditions, and fluctuating forex rates. 
  • However, for the slightly longer term, prospects should improve next year. 
  • For one, it expects the local industry to benefit from increased domestic demand with the implementation of the biodiesel policy in Indonesia. 
  • Then there is also the increased likelihood of reduced CPO production due to weather issues, with some expecting annual production to drop by 10% next year. 
  • However, it also notes that any jump in CPO prices could remain constrained by prices of competing seed oil (the market is still expecting an oversupply issue) and also weak crude oil prices. 

Keep HOLD with new S$0.34 FV 

  • In view of the results as well as the still weak near-term outlook, we opt to pare our FY15 estimates for revenue by 2% and earnings by 6% (also paring our FY16 forecasts by 3% and 15%, respectively). Hence even as we push out our 12.5x peg from FY15F to FY16F EPS, our fair value only improves marginally from S$0.325 to S$0.34. 
  • Maintain HOLD. However, we do not rule out a negative knee-jerk reaction, and believe that some bargain hunting opportunity could emerge around S$0.30 or better.

Carey Wong CFA OCBC Securities | http://www.ocbcresearch.com/ 2015-11-13
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.34 Up 0.325