Golden Agri-Resources - CIMB Research 2017-08-14: Project Stronger 2H17 FFB Output

Golden Agri-Resources - CIMB Research 2017-08-14: Project Stronger 2H17 FFB Output GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri-Resources - Project Stronger 2H17 FFB Output

  • Golden Agri-Resources' 1H17 core net profit made up 28% of our and 29% of consensus' full-year net profits.
  • We consider this to be broadly in line as we expect stronger 2H earnings.
  • 2Q pretax profit fell 46% qoq due to lower FFB production (-5% qoq).
  • 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).

1H17 results broadly in line with expectations 

  • Golden Agri’s 1H17 core net profit of US$59m was broadly in line, making up 28% of our and 29% of consensus’ full-year net profits of US$212m and US$200m, respectively. 
  • We expect stronger 2H17 earnings driven by higher FFB production and higher downstream contributions. Golden Agri revealed that it expects 2H17 FFB production to make up around 55% of its full-year output.

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

  • Golden Agri added back the depreciation charges of bearer plants of US$78m to derive its reported underlying profit of US$137m in 1H17. This is higher than our core net profit of US$59m in 1H17, which strips out depreciation charges to be consistent with our core net profit calculations for other Singapore planters.

All segments delivered better performances in 1H17 

  • The group posted a 214% improvement in 1H17 pretax profit thanks to better performances from its plantation and downstream divisions. However, reported net profit fell 56% yoy in 1H17, due to the absence of deferred tax income of US$131m in 1H16.
  • 2Q17 pretax profit fell 46.4% qoq as plantation EBITDA were impacted by lower output as well as ASPs.

FFB output recovers from El Nino impact 

  • Plantation EBITDA grew 64% yoy in 1H17, thanks to a higher CPO price and 35% rise in nucleus estates’ FFB output. However, 2Q17 plantation EBITDA fell 27% qoq due to lower FFB output (-5% yoy). 
  • Its downstream division posted a 5% improvement in EBITDA in 1H17, while oilseeds and grains posted a 59% jump in 1H17 profit to US$4.5m thanks to higher crush margins.

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

  • The group has maintained its FFB output growth guidance of 15-20% in FY17. The higher output is expected to lower the group’s cost of production to US$300/tonne in FY17 vs. US$312/tonne in FY16. 
  • The group has maintained its plans to replant around 10,000 ha of estates in 2017, and indicated that it could raise the replanting areas to 15,000 ha in 2018. It replanted 1,900 ha in 1H17.

Other key takeaways from the teleconference 

  • The group indicated that the palm oil inventory level at the group stood at 459k tonnes as at end-June, which is lower than the 547k tonnes as at end-March 17. 
  • The group revealed that the utilisation rate at its biodiesel plants is currently at 33.5% due to low domestic demand for biodiesel. It expects Indonesia to consume around 3 to 3.5m tonnes of biodiesel in 2017, CPO prices to trade between US$600 and US$700 per tonne, and downstream EBITDA margins at 2-3% in 2017.

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). 
  • A key upside risk is higher than-expected CPO prices and production.

Ivy NG Lee Fang CFA CIMB Research | 2017-08-14
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