Golden Agri - RHB Invest 2017-02-27: Improving Outlook For 2017

GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri - Improving Outlook For 2017

Golden Agri expects to see a marked recovery in FFB output in 2017, coming from a recovery in yields post El Nino.
On the downstream front, it expects to see improved refining margins as selling prices are on a rising trend.
We expect earnings in 2017 to more than double on the back of these factors and the lack of further deferred tax asset recognitions. No change to our BUY recommendation with a slightly lowered TP of SGD0.45 (from SGD0.50, 12% upside).

We continue to like the company for its inexpensive valuations and integrated operations, which would bode well for it in volatile price conditions.

Golden Agri-Resources (Golden Agri) saw a marked FFB output recovery of 33% QoQ and 10% YoY in 4Q, bringing FY16 FFB output to -11% YoY (better than management‘s original guidance of -15% to -20% and our -16% YoY forecast).
For FY17, Golden Agri expects FFB output to recover significantly by at least 15-20% YoY, as it expects a strong pickup post-1Q17. We maintain our more conservative +12% projection for FY17 for now;
iIt intends to replant 10,000ha of land in 2017 (up from 7,300ha in 2016). Post-FY18, it is likely to ramp up replanting efforts more aggressively.
Golden Agri saw a slight reduction in its palm and laurics margin to 2.5% in 4Q16 (from 3.7% in 3Q16). The company hopes to be able to bring margins back to above 3% going forward on the back of increased prices.

In FY16, it recognised deferred tax income of USD304m, coming from a change in accounting policy to take advantage of a lowered tax rate for revaluation on assets in Indonesia.
Going forward, Golden Agri should not see any further deferred tax asset recognitions, although effective tax rates should be lowered due to the new accounting treatment.

After adjusting for FY16 results, we tweak our forecasts downwards slightly by 3-4% for FY17-18 and introduce FY19 forecasts.

We maintain our BUY recommendation on the stock, with a slightly lowered TP of SGD0.45. This implies 19x 2017 P/E and an EV/ha of USD11,000, which is a the lower end of its peers’ range of USD10,000- 20,000/ha.
It is currently trading at 16x P/E which is at a discount to its regional peer average of 19x.
Being one of Singapore’s highest beta plantation stocks, it would bode well for it in periods of market uncertainty and price volatility.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-02-27

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.450 Down 0.500