Golden Agri-Resources - CIMB Research 2016-02-29: Low CPO prices negate better refining profit

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GOLDEN AGRI-RESOURCES LTD E5H.SI 

Golden Agri-Resources - Low CPO prices negate better refining profit 

• Final FY15 core net profit broadly in line with our forecast but above consensus’. 
• Lower CPO selling prices dragged down core earnings. 
• Reported FY15 net loss due to US$198m fair value loss on its biological assets. 
• 2016 production to be impacted by drought, resulting in better CPO prices. 
• Maintain Reduce and target price of S$0.35. 

■ Final results broadly in line with expectations 

• Golden Agri’s FY15 core net profit met our estimate but was above consensus, at 102% of our and 107% of consensus forecasts. 
• FY15 core earnings fell 9% yoy as better downstream margins and higher oilseeds earnings could not offset lower CPO prices. 
• As expected, the group declared a final dividend of 0.502 Scts per share. 

■ Reported net loss due to FV loss on its biological assets 

• The group reported a final net loss of US$17m, which was below our forecast of US$169m due to: 
  1. fair value loss of US$198m on its biological assets, and 
  2. forex losses of US$91.8m due to translation loss in its Rp-denominated assets and FV loss on forward foreign currency contracts. 
  The FV loss on its biological assets was to reflect lower CPO price assumptions in line with weaker international prices. 

■ Plantation contribution fell due to lower CPO prices 

• Plantation earnings fell 26% yoy in FY15 as the 3% rise in FFB output from its estates and lower costs were not sufficient to offset the 25% yoy decline in CPO ASP in the international market to US$574 per tonne. 

■ Better downstream margins and oilseeds return to profit 

• Its palm and laurics business division posted an 89% improvement in EBITDA due to an 8.3% rise in sales volumes of palm products to 8.76m tonnes. 
• The better margins were also due to the implementation of palm oil export levy (which provided refiners with lower feedstock costs), as well as the company’s efforts to optimise its downstream business. 
• Its oilseeds unit reported positive FY15 EBITDA of US$11.3m from a loss of US$60.3m in FY14. 

■ Outlook for FY16 

• The group projects lower production in 2016 due to the El Nino in 2015. However, it expects the lower production impact to be mitigated by higher CPO prices, which will be driven by lower palm oil supplies and higher biodiesel usage in Indonesia. 
• It plans to optimise downstream margins through further vertical integration of its operations, and continues to evaluate the business strategy for its oilseeds business. 

■ Maintain Reduce with unchanged TP of S$0.35 

• We maintain our Reduce call in view of the group’s unexciting near-term earnings prospects, as we believe its 2016 earnings will be impacted by slower output growth and higher depreciation charges due to the changes in its accounting policy for biological assets. 
• We maintain our target price of S$0.35, based on CY17F P/E of 15x, its historical average.

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2016-02-29

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