Golden Agri-Resources - CIMB Research 2017-05-15: Not An Exciting 1Q Despite Stronger Output

Golden Agri-Resources - CIMB Research 2017-05-15: Not An Exciting 1Q Despite Stronger Output GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri-Resources - Not An Exciting 1Q Despite Stronger Output

  • 1Q core net profit made up only 20% of our and consensus’ full-year net profits.
  • GGR’s 1Q17 core net profit of US$43m was below First Resources’ US$47m.
  • We deduce that this was due mainly to pretax losses at its downstream division.
  • It maintained its guidance for its FFB output to grow by 15-20% for FY17.
  • Maintain Reduce with an unchanged target price of S$0.37 (15x P/E).

1Q17 results broadly in line with expectations 

  • Golden Agri’s 1Q17 core net profit of US$43m was broadly in-line, making up 20% of our and consensus’ full-year net profits of US$212m and US$200m, respectively. 
  • The 1Q17 reported net profit of US$38m was below our core net profit due to US$4m of deferred tax expenses, US$1m forex loss and US$1m loss from revaluation of biological assets.

Explaining GGR underlying profit vs. CIMB’s core net profit 

  • Golden Agri added back the depreciation charges of bearer plants of US$40m to derive its reported underlying profit of US$84m in 1Q17. This is higher than our core net profit of US$43m in 1Q17, which strips out depreciation charges to be consistent with our core net profit calculations for other Singapore planters.

Losses at downstream division hit 1Q performance 

  • We are surprised that Golden Agri’s 1Q core net profit of US$43m was lower than FR’s 1Q core net profit achievement of US$47m. Our analysis reveals that this could be due to pretax losses at the downstream division. 
  • Golden Agri posted US$91.8m depreciation expenses in 1Q17 and attributed US$40m of the charges to bearer plants. This suggests that the remaining US$52m depreciation was due to its palm and laurics as well as oilseeds and grains division, which booked EBITDA of only US$41.3m in 1Q17. 

Plantation gain trumped lower downstream performances 

  • Plantation EBITDA grew 85% yoy in 1Q17, thanks to higher CPO price and a 29% rise in nucleus estates’ FFB output. However, plantation EBITDA grew by only 1% qoq as FFB output fell 20%, in line with the seasonal trend. 
  • Its downstream division posted a 37% yoy and 14% qoq drop in earnings due to higher raw material costs, while oilseeds and grains posted a profit of US$2.3m in 1Q17.

Maintain FFB output growth guidance of 15-20% for 2017 

  • The group has maintained its FFB output growth guidance of 15-20% in FY17. It has guided for a lower cost of production of US$300/tonne vs. US$312/tonne in FY16, due to higher output. 
  • The group maintained its plans to replant around 10,000 ha of estates in 2017, and indicated that fertilisers application in 1Q17 was slightly behind schedule.

Other key takeaways from the teleconference 

  • The group indicated that 2Q’s production could be lower than 1Q’s due to festivities and high base in 1Q. The group projects 2H17 production to be stronger and to account for 60% of its full-year output. Its second biodiesel plant with production capacity of 300,000 tonnes will come on stream in 2Q, bringing its total biodiesel capacity to 600,000 tonnes.

Maintain Reduce and target price of S$0.37 

  • We maintain our earnings forecasts and target price (15x historical P/E). 
  • Our Reduce call is intact due to concerns over its unexciting output prospects beyond FY17 as 47% of its estates are above 19 years old (average age of its estates is 16 years old) and higher depreciation charges for its downstream assets. 
  • A key upside risk is higher than expected CPO prices.

Ivy NG Lee Fang CFA CIMB Research | 2017-05-15
CIMB Research SGX Stock Analyst Report REDUCE Maintain REDUCE 0.370 Same 0.370