GOLDEN AGRI-RESOURCES LTD
E5H.SI
Golden Agri - Downstream Earnings The Saviour
- We expect Golden Agri-Resources’ (Golden Agri) upstream earnings to play catch-up in 2H16 as productivity improves, while downstream margins may normalise to slightly lower levels going forward.
- No change to our BUY recommendation, with a lower TP of SGD0.42 (from SGD0.47), based on 18x 2016F P/E and an EV/ha of USD12,000/ha, in line with its regional peers.
Briefing highlights:
- While management expects FFB production to recover in the second half of the year, representing a ratio of 45:55% in 1H:2H, it now expects the FFB decline to remain at similar levels of -10 to -15% YoY this year (from -5 to -10% previously). We therefore lower our FFB projection this year to reflect a 12% decline (from -5%), followed by a 1-3% improvement in FY17-18;
- Palm and laurics margin included some trading profits in 1Q16. A more sustainable margin would be 2-3% (from 4-5% currently);
- Its first biodiesel plant has started operating, with the next one to be ready by early 2017 and the third, two years after. By then, total capacity would be 0.9m tonnes per year.
Lower earnings and TP.
- We reduce our earnings forecasts for FY16-18 by 12- 14% after lowering our FFB growth numbers.
- Our TP falls to SGD0.42 (from SGD0.47), based on 18x 2016F earnings and backed by an implied EV/ha of USD12,000/ha, in line with its regional peers’ USD10,000-20,000/ha.
- Key risks include the reversal of CPO price trends as well as weaker-than-expected demand.
Downstream unit helped to offset lower upstream earnings.
- Golden Agri’s downstream profits continued to improve as refining margins rose further, while the oilseed crushing business ventured further into the black. This helped to offset the El Nino impact somewhat, given the FFB production decline of 12% YoY in 1Q16 and the 16% YoY drop in CPO prices.
Singapore Research
RHB Invest
|
http://www.rhbinvest.com.sg/
2016-05-16
RHB Invest
SGX Stock
Analyst Report
0.42
Down
0.47
