Golden Agri - OCBC Investment 2016-08-15: Still muted 2Q16 showing

Golden Agri - OCBC Investment 2016-08-15:  Still muted 2Q16 showing GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri - Still muted 2Q16 showing

  • 2H performance likely better.
  • But overall environment remains challenging.
  • Maintain HOLD. 



Still muted 2Q16 showing 

  • Golden Agri-Resources (GAR) turned in a pretty muted 2Q16 performance, with revenue down 5% YoY at US$1741.8m, impacted by low production arising from the severe El Nino impact last year. As a result, EBITDA plunged 41% to US$85.9m, and it turned in a small operating loss of US$3.0m, versus US$113.2m profit in 2Q15. 
  • But aided by a large tax credit of US$96.4m, reported NPAT came in at US$39.5m, +2.0%; however, excluding one-off items and forex losses, GAR estimates that core earnings would have jumped 279% to US$40m. 
  • For 1H16, revenue eased 4.4% to US$3235.4m, meeting 48% of our full-year forecast, while reported NPAT came in at US$133.6m, +1753.9%; but estimated core earnings of US$80m only met 38% of our FY16 estimate.


CPO production likely to fall more 

  • Going into 2H16, GGR does not expect CPO production to see a strong seasonal pickup; this after CPO production fell 24% in 1H16. Instead, it is now expecting production to fall further by some 15-20% for 2016, versus its earlier guidance of a 10-15% drop. 
  • According to management, the yields are only expected to normalize by 2Q or 3Q of 2017. On the other hand, CPO prices appear to have hit a plateau of around US$700/ton; and while restocking in 2H16 should keep prices supported, management does not expect the prices to return to the US$800-900 levels any time soon. 
  • Nevertheless, GGR believes it can achieve better performance in 2H16, supported by potential La Nina conditions and further implementation of Indonesia's biodiesel mandate.


Tax benefits of US$250m expected this year 

  • After booking a net tax benefit of US$131m in 1H16, management expects to book more of such credits in 2H16; this to the tune of US$250m for 2016, but the tax benefit will not be repeated in 2017.
  • We have adjusted our FY16 estimates to reflect this. Pushing out our 12.5x peg to FY17F EPS, our fair value remains largely unchanged at S$0.34. 
  • Maintain HOLD for now; re-engage closer to S$0.33 or better.






Carey Wong CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-08-15
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.340 Same 0.340


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