Golden Agri-Resources - CIMB Research 2017-11-14: 9M17 A Miss Due To Weaker Plantation Contribution

Golden Agri-Resources - CIMB Research 2017-11-14: 9M17 A Miss Due To Weaker Plantation Contribution GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri-Resources - 9M17 A Miss Due To Weaker Plantation Contribution

  • Golden Agri-Resources' 9M17 core net profit accounts for 48% of our and 57% of Bloomberg consensus' fullyear net profit.
  • We deem this below expectation, mainly due to weaker plantation contribution.
  • 3Q17 EBITDA grew 24% qoq due to higher FFB production (+15% qoq).
  • We cut our FY17-19 EPS forecasts by 14 -31% to reflect lower plantation earnings.
  • Maintain Reduce with a lower target price of S$0.36 (15x FY19F P/E).

9M17 results below expectations 

  • Golden Agri’s 9M17 core net profit of US$102m was below expectation, at only 48% of our and 57% of Bloomberg consensus’ full-year forecast of US$212m and US$179m, respectively. 
  • We expect 4Q17 earnings to be flattish qoq, as the group indicated that 4Q17 FFB output may be unchanged or lower vs. 3Q17. 
  • An interim dividend of 0.693 SCts per share was declared for 3Q17, broadly in line with expectations.

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

  • Golden Agri added back the depreciation charges of bearer plants, totalled US$114m, to derive its reported underlying profit of US$217m for 9M17. This figure is higher than our core net profit of US$102m for 9M17 which strips out depreciation charges, to be consistent with our core net profit calculations for other Singapore planters.

Stronger plantation earnings trumped weaker downstream profit 

  • Golden Agri posted a 29% improvement in 9M17 EBITDA as better performance by its plantation segment trumped weaker earnings from palm and laurics and oilseeds segments. However, reported net profit fell 71% yoy in 9M17, due to the absence of deferred tax income of US$262m in 9M16. 
  • 3Q17 EBITDA grew 24% qoq, due mainly to higher plantation (+30% qoq) and downstream contributions (+7.4% qoq).

FFB output recovers from El Nino impact 

  • Plantation EBITDA grew 58% yoy in 9M17, thanks to a higher CPO price and 27% rise in the FFB output of nucleus estates. Its downstream EBITDA fell 10% in 9M17 due to weaker biodiesel and refining margins, while oilseeds and grains profit declined 54% due to weaker crush margins.

FFB output growth guidance for 2017 lowered to 10-15% 

  • Golden Agri lowered its FY17 FFB output growth guidance to 10-15% from 15-20%. It maintained its FY17 cash costs guidance of US$300 per tonne, which is marginally higher than 9M17’s US$296 per tonne. 
  • The group expects FFB output to grow by another 10% in 2018 and CPO prices to trade in the range of US$650-700 per tonne.

Other key takeaways from the briefing 

  • Golden Agri indicated that its palm oil inventory level stood at 587k tonnes as at end-Sep, higher than the 459k tonnes as at end-Jun. It expects Indonesia to consume around 2.5m-2.8m tonnes of biodiesel in 2017. 
  • The group is also at the final stage of reviewing its China oilseed business and may consider disposing part of it.

Cut earnings forecasts and retain Reduce call 

  • We slash our earnings forecasts by 14-31% for FY17-19F to reflect lower CPO prices and FFB output assumptions. This, coupled with the rollover of our target price to end- 2018F, led to a lower target price of S$0.36 (based on 15x 5-year historical P/E). 
  • We keep our Reduce call due to concerns over its unexciting output prospects beyond FY17F as 47% of its estates are above 19 years old (average age of its estates is 16 years old). 
  • Key upside risks are higher than-expected CPO prices and production.

Ivy NG Lee Fang CFA CIMB Research | 2017-11-14
CIMB Research SGX Stock Analyst Report REDUCE Maintain REDUCE 0.36 Down 0.370