Golden Agri - OCBC Investment 2018-05-16: A Soft Quarter

GOLDEN AGRI-RESOURCES LTD SGX: E5H

Golden Agri - A Soft Quarter

Golden Agri-Resources (GAR) reported an 11.3% y-o-y fall in revenue to US$1.8b and a 68.4% drop in net profit to US$11.9m in 1Q18, such that the latter accounted for only 6% of ours and the street’s full year estimates. Reported underlying profit (excludes US$22m depreciation of bearer plants, amongst others) was US$25m in 1Q18 vs. US$86m in 1Q17.
The operating performance of the group was affected by lower production output (tree-stress effect after high production in 2017 following recovery from El Nino) and softer crude palm oil prices (CPO) during the period. More specifically, palm product output in 1Q18 was 612k MT, down 12% y-o-y, while CPO FOB price was US$645/MT, also down 12% y-o-y. These resulted in lower EBITDA of US$95m for the plantation and palm oil mills segment, US$25m for palm and laurics, while EBITDA for oilseeds and others was US$3m in 1Q18.
Still, the group expects to achieve 8-9% production growth for 2018.

As of 31 Mar 2018, 41% of GAR’s oil palm plantations belonged to the “prime 1” age of 7-18 years, 34% belonged to “prime 2” age of 19-25 years, while 14% were more than 25 years old. The rest were in the “young” and “immature” categories of less than 7 years old.
The group will be spending US$110m this year in the upstream segment on replanting with higher-yielding seeds to sustain production growth, as well as continued efforts in yield improvement, cost efficiency and sustainability initiatives.
Another US$110m will be spent on the downstream segment to extend product portfolio, global market reach and logistic facilities to enhance the group’s integrated operations.

GAR’s operating performance will continue to be affected by the prices of CPO and competing seed oils, fluctuating foreign currency exchange rates and weather conditions.
Meanwhile, management expects the demand of palm oil to be supported by global demand growth, including the implementation of the biodiesel mandate in Indonesia.
We tweak our earnings estimates and our Fair Value estimate slips from S$0.37 to S$0.34 (19x FY19F earnings).

Low Pei Han CFA OCBC Investment | https://www.iocbc.com/ 2018-05-16

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