Golden Agri - RHB Invest 2015-11-13: 9M Earnings In Line

GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri (GGR SP) - 9M Earnings In Line

Golden Agri’s 9M earnings were largely in line as lower production was offset by weather-driven lower fertiliser application.
Although well-diversified geographically across Indonesia, its 2016 production could drop by as much as 10% as about 70% of its plantations are experiencing dryness.
Maintain BUY with a new SGD0.42 TP (17% upside), as the company is a proxy to the plantation sector and its stock price tends to rise in tandem with palm oil prices.

Golden Agri’s 9M15 core earnings were largely in line with expectations. Core PBT made up 76% of our full-year forecast.
The plantation upstream business suffered from lower ASP and yield while downstream continued to do well on the back of Indonesia’s export levy due to the differential between crude and refined palm oil export levies.

After three straight quarters of YoY decline in its nucleus FFB production, Golden Agri’s 3Q production rose by 4.9% driven by an increase in mature hectarage while yield stayed flat at 5.9 tonnes/ha.
YTD production continued to trail 2014 levels, down 1.6%. We have lowered our FY15 production growth expectation to 2.1% from 5.1% earlier. We also tone down FY16 production by 4.9% to 7.8m tonnes, representing a 1% growth.
Management indicated that production could drop up to 10% next year due to the current drought.

Management is accelerating its 300,000 tonnes/year biodiesel plant development, which will be ready by 1Q next year. This is to take advantage of Indonesia’s biodiesel mandate which has just restarted.
We have factored in contribution from 70% utilisation for FY16 and 90% for FY17. Capex for FY15 could balloon to USD450m due to carry forward of plant development but reduce to USD250m for FY16.

We maintain FY15 earnings forecast as the lower production was offset by the lower fertiliser usage.
We revise down FY16 and FY17 earnings forecasts by 10.2% and 8.7% on lower production offset by biodiesel contribution.
Our TP is cut to SGD0.42 (from SGD0.46), which is based on unchanged 19x FY16 earnings.

Singapore Research + RHB Research | http://www.rhbinvest.com.sg/ 2015-11-13

RHB Research SGX Stock Analyst Report BUY MAINTAIN BUY 0.42 Down 0.46