Golden Agri-Resources (GGR SP) - UOB Kay Hian 2017-08-15: 2Q17 Results Within Expectations

Golden Agri-Resources (GGR SP) - UOB Kay Hian 2017-08-15: 2Q17 Results Within Expectations GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri-Resources (GGR SP) - 2Q17 Results Within Expectations

  • Golden Agri-Resources (GGR) reported a 1H17 core net profit of US$137m, which is in line with our expectation. FFB production surpassed 1H15’s level, suggesting the lagged impact from the severe drought is weakening. 
  • With the higher CPO ASP yoy, 1H17 core net profit increased over 100%. However, 2Q17 earnings were weaker qoq mainly due to lower production from the plantation division and the oilseeds division’s weaker margin. 
  • Maintain HOLD. Target price: S$0.34. Entry price: S$0.30.


Results within expectations. 

  • Golden Agri’s (GGR) 2Q17 core net profit of US$53m and 1H17 core net profit of US$137m were in line with our forecasts. 
  • 1H17 core net profit accounted 48% of our full-year estimates. We are expecting a better performance in 2H17 on the back of higher production and stable CPO prices. 
  • 2H17 production growth is expected to be lower than 1H17’s given 2H16’s higher base vs 1H16.

Weaker qoq due to poor performance from plantation and oilseeds divisions. 

  • The plantation division’s earnings were impacted by lower sales volume (-17.2% qoq).
  • Meanwhile, the oilseeds division’s EBITDA fell 7.7% qoq due to a weaker margin of US$6.5/tonne in 2Q17 vs US$7.2/tonne in 1Q17.

Stronger yoy performance mainly supported by better contribution from all three divisions. 

  • The plantation division improved yoy in 2Q17 and 1H17, mainly supported by higher FFB production and CPO ASP. 
  • Meanwhile, palm & lauric EBITDA increased yoy, mainly supported by a better margin despite lower sales volume. 
  • For the oilseeds division, the better earnings yoy was thanks to margin turnaround.


1H17 FFB nucleus production surpassed 1H15’s level. 

  • For 1H17, FFB nucleus production was 3.7m tonnes, higher than 1H15’s FFB production of 3.5 m tonnes, and accounts for 48% of our full-year estimates. 
  • Meanwhile, FFB yield for 1H17 at 9.8 tonnes/ha was almost on par with 1H15’s 9.9 tonne/ha. This indicates that trees are now less stressed and recovering from the lagged impact of severe drought.

Key highlights from analyst briefing:

  • Management maintains production growth guidance of 15-20% yoy for 2017, and reckons that growth would likely hit the higher end of the guidance. We maintain our FFB production growth forecast of 12% yoy for 2017, which is lower than management’s guidance. Every 5ppt increase in FFB production growth will increase our 2017 net profit forecast by 8%.
  • Targets to replant about 10,000ha for 2017, with about 1,900ha replanted to date. Replanting efforts are likely to accelerate given that about 10% of its trees are above 25 years old. Replanting with the new seeds should give better oil yield.
  • Downstream margins of 2-3% are sustainable for 2017. 2H17 could see marginal improvement as forward pricing is better now.
  • Biodiesel delivery is behind schedule. Other players are facing a similar situation as well. Current utilisation rate is about 33%.


  • Maintain net profit forecasts. We are expecting EPS of 2.2 US cents, 2.2 US cents and 2.6 US cents for 2017-19 respectively.


  • Maintain HOLD and target price of S$0.34, pegged at 13x 2018F PE, in line with Singapore plantation companies’ mean PE. Entry price is S$0.30. 
  • We reckon that current prices have already factored in the higher production and earnings expected for 2H17. 
  • In the meantime, there are rising concerns on the potential CPO price weakness going into 2018 with another round of higher palm oil production and bumper soybean crops to come.


  • Better-than-expected CPO prices. As one of largest upstream players in the sector, GGR has the highest leverage to CPO prices.
  • Continuous turnaround in its Chinese soybean crushing operations.

Leow Huey Chuen UOB Kay Hian | Ooi Mong Huey UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-15
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 0.340 Same 0.340