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

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.

Briefing highlights: 

  1. 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%).
  2. 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%); 
  3. 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; 
  4. 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.
  5. 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.

Raised earnings and TP. 

  • 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
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.440 Up 0.420