Golden Agri - RHB Invest 2016-11-15: The Best Is Yet To Come

Golden Agri - RHB Invest 2016-11-15: The Best Is Yet To Come GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri - The Best Is Yet To Come

  • GGR expects to see stronger QoQ FFB output in 4Q16, following an already robust rise in 3Q16, on the back of improved weather conditions at its estates. 
  • Its refining and oilseed crushing margins have turnaround and is anticipated to remain firmly in positive territory. 
  • We adjust our earnings up to impute higher downstream margins and higher deferred tax income. Our TP is raised to SGD0.46 (previous SGD0.44, 19% upside), which implies FY17 P/E of 18x and EV/ha of USD11,000/ha, at the lower end of its peers average of USD10,000-20,000/ha. 
  • Buy maintained.

Briefing highlights: 

  1. GGR saw a marked FFB output recovery of 40% QoQ in 3Q, and expects 4Q16 to be an even better quarter. For FY16, it is maintaining its FFB output projection of -15-20% YoY, which is in line with our -16% YoY forecast.
  2. For FY17, GGR expects FFB output to recover significantly from the El Nino by at least 15-20% YoY, as it expects a strong pickup in 2H17. We maintain our more conservative +12% projection for FY17 for now; 
  3. GGR saw a turnaround in its palm and laurics margin to 3.7% in 3Q16 (from 0.8% in 2Q16). GGR expects to be able to maintain margins of at least 3% going forward on the back of increased prices and better cost efficiencies. We adjusted our forecasts accordingly.
  4. The oilseeds division also saw a reversal from a loss in 2Q16 to a profit, thus doubling EBITDA margins in 9M16. GGR does not expect 3Q16’s performance to be sustainable, although margins should remain positive from hereon.
  5. In 9M16, GGR recognised deferred tax income of USD215m, coming from a change in accounting policy to take advantage of a lowered tax rate for revaluation on assets in Indonesia. GGR expects another USD40m to be recognised by year-end, which we have imputed into our forecasts.

Raised earnings and TP. 

  • We raised our earnings forecasts for FY16 by 14.5% after raising our refining and oilseed divisions earnings. FY17-18 forecasts were raised by 4-7%. 
  • Our TP is raised slightly to SGD0.46 (from SGD0.44), based on 18x 2017F earnings and backed by an implied EV/ha of USD11,000/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.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-11-15
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.46 Up 0.440