Golden Agri - RHB Invest 2016-08-15: Boosted By Deferred Tax Income

GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri - Boosted By Deferred Tax Income

Golden Agri expects the worst of the El Nino impact to be over, with a rapid recovery in FFB output to come through from 2H16 onwards.
Although refining margins weakened in 2Q16 due to competition for external CPO, this should normalise to higher levels in 2H16, as the El Nino impact wanes.

We maintain our Buy recommendation on GGR with a slightly higher TP of SGD0.44 (from SGD0.42), based on an unchanged 18x 2017 P/E target and an EV/ha of USD10,000, which is in line with its peers.

While GGR expects FFB output to recover in 2H16, representing a ratio of 40:60% in 1H:2H, it now expects the FFB decline to be at a lower 15-20% YoY this year (from -10 to -15% previously). We therefore lower our FY16 FFB projection to reflect a 16% decline (from -12%).
For FY17, GGR expects FFB output to recover from the El Nino by at least 15% YoY. We have raised our FY17 growth projection to +12% (from +1%);
Palm and laurics margin should normalise to 2-3% in the 2H16 (from 0.8% in 2Q16, on the back of higher availability of external CPO;
GGR has sold forward 430k tonnes of CPO (c 20% of FY16 output) at about USD600/tonne, but this would be largely offset with forward purchases.
In 1H16, GGR recognised deferred tax income of USD130m, coming from a change in accounting policy to take advantage of a lowered tax rate for revaluation on assets in Indonesia. GGR expects to recognise another similar amount in deferred tax assets in 2H16.

Key risks include the reversal of CPO price trends as well as weaker-than-expected demand.

We raised our earnings forecasts for FY16 by 52% after lowering our FFB growth numbers and imputing the deferred tax income impact. FY17-18 forecasts were raised by 4-6%.
Our TP is raised slightly to SGD0.44 (from SGD0.42), based on 18x 2016F earnings and backed by an implied EV/ha of USD10,000/ha, in line with its regional peers’ USD10,000- 20,000/ha.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-15

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