Golden Agri-Resources - CIMB Research 2018-02-27: Plans To Increase Replanting Could Stifle Growth

Golden Agri-Resources - CIMB Research 2018-02-27: Plans To Increase Replanting Could Stifle Growth GOLDEN AGRI-RESOURCES LTD E5H.SI

Golden Agri-Resources - Plans To Increase Replanting Could Stifle Growth

  • Golden Agri-Resources' FY17 core net profit came in below expectations, accounting for only 70% of our and 60% of Bloomberg consensus full-year net profit forecasts.
  • The weaker-than-expected results were mainly due to lower FFB production. FFB production only increased by 8% y-o-y vs. our projection of 15%.
  • 4Q17 EBITDA fell 13% y-o-y due to lower FFB production (-27% y-o-y).
  • We cut our FY18-19 EPS forecasts by 13-15% to reflect lower plantation earnings.
  • Maintain REDUCE with a lower target price of S$0.31 (15x FY19F P/E).



Golden Agri’s (GGR) FY17 results below expectations 

  • Golden Agri-Resources' FY17 core net profit of US$104m was below expectations, at only 70% of our and 60% of Bloomberg consensus full-year forecasts of US$148m and US$173m, respectively. The weaker-than-expected results were mainly due to lower FFB production. 
  • Golden Agri-Resources posted FFB output growth of 8% compared to our output growth projection of 15%. 
  • A final dividend of S$0.00116 per share was declared in 4Q17, bringing FY17 dividend to S$0.00809 (FY16: S$0.00635)– ahead of our forecast of S$0.0046.


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

  • Golden Agri added back the depreciation charges of bearer plants of US$149m, to derive its reported underlying profit of US$254m for FY17. However, this figure is higher than our core net profit of US$104m for FY17 which strips out depreciation charges, to be consistent with our core net profit calculations for other Singapore planters. 
  • Our FY17 core net profit adds back net loss from revaluation of biological assets of RM1m, net forex loss of RM20m and impairment losses amounting to RM46m for its China plants.


Stronger plantation earnings cushion weaker downstream profit 

  • GGR posted a 16% y-o-y improvement in FY17 EBITDA as better performance by its plantation segment trumped weaker earnings from palm and laurics and oilseeds segments. FY17 plantation EBITDA growth of 32% y-o-y was driven by higher FFB production (+8% y-o-y) and higher ASPs (+10% y-o-y). On the flipside, downstream EBITDA fell 13% y-o-y due to weaker refining margins while oilseeds and grains EBITDA recorded 21% y-o-y decline as a result of weaker crush margins.


Target FFB output growth of 8-10% for 2018 

  • The group blamed the lower-than-expected 4Q17 FFB output on the El Nino drought in 2015. It projects strong recovery in FFB yields for 2018 and expects FFB output to increase by 8-10% in 2018. 
  • It targets to maintain its FY18 cash costs at US$300 per tonne, which is similar to FY17’s US$299 per tonne. It expects CPO prices to trade in the range of US$650-700 per tonne.


Other key takeaways from the briefing 

  • Golden Agri-Resources indicated that it plans to accelerate its replanting efforts to 15,000 ha in 2018 vs. 9,900 ha in 2017. The group’s palm oil inventory level stood at 480k tonnes as at endDec 17, higher than the 587k tonnes as at end-Sep 17. 
  • The group also revealed that it has sold its Tianjin plant for US$111m and targets to complete the disposal in 2Q18. In view of this, it provided impairment of US$20m for the plant in 4Q17.


Cut earnings forecasts, target price and retain Reduce call 

  • We cut our earnings forecasts by 13-15% for FY18-19F to reflect our lower FFB output assumptions in view of the group’s plan to accelerate replanting of its estates. This results in a lower target price of S$0.31 (still based on 15x 5-year historical P/E). 
  • We keep our REDUCE call due to concerns over its unexciting output prospects as the average age of its estates is 16 years. 
  • Key upside risks are higher than-expected CPO prices and production.




Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2018-02-27
CIMB Research SGX Stock Analyst Report REDUCE Maintain REDUCE 0.310 Down 0.360



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