Golden Agri-Resources - CGS-CIMB Research 2018-08-15: Unexpected 2Q Core Loss Caused By Low CPO Prices

GOLDEN AGRI-RESOURCES LTD SGX:E5H

Golden Agri-Resources - Unexpected 2Q Core Loss Caused By Low CPO Prices

Golden Agri posted a core net loss of US$7.2m in 1H18 which was below our and consensus expectations.
The weaker results were due to lower CPO prices and downstream margins.
1H18 EBITDA fell 28% y-o-y due to lower CPO prices, production and refining margins.
We cut our FY18-20F EPS forecasts by 9-60% to reflect lower plantation earnings.
Maintain REDUCE with a lower target price of S$0.25 (20% discount to SOP).

Golden Agri’s 1H18 core net loss of US$7.2m was below expectations. We had projected US$122m core net profit for the full year while Bloomberg consensus forecast full-year core net profit of US$156m.
The weaker-than-expected results were mainly due to lower FFB production and CPO prices as well as weaker downstream margins due to the untimely purchase of feedstock.
Golden Agri posted a 2% y-o-y drop in FFB output for 1H18 compared to our output growth projection of 9.5% for FY18. As expected, the group did not declare an interim dividend in 2Q18.

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Golden Agri added back the depreciation charges of bearer plants of US$48m, to derive its reported underlying profit of US$41m for 1H18. However, this figure is higher than our core net loss of US$7.2m for 1H18, which strips out depreciation charges, to be consistent with our core net profit calculations for other Singapore planters.
Our 1H18 core net profit also excludes net forex loss of US$16m, net loss on Fair Value changes in biological assets of US$11m and deferred tax income of US$7m.

Golden Agri posted a 28% y-o-y drop in its 1H18 EBITDA due to weaker contributions from all its key business segments. The plantation EBITDA fell 43% y-o-y due to weaker FFB production (-2% y-o-y) and lower ASPs for CPO (-7% y-o-y).
On top of this, its downstream division registered a 43% y-o-y drop in 1H18 EBITDA due to the untimely purchase of feedstock ahead of the festive season.

Golden Agri blamed the lower 1H18 FFB output on weak production at its estates in East Kalimantan and South Sumatra. It projects a strong recovery in FFB yields in 2H18 and maintains its target to increase FFB output by 8-10% in 2018.
Despite the lower output in 1H18, Golden Agri successfully retained its 1H18 cost of production at US$303 per tonne. It also maintains its target of achieving FY18 cash cost of US$300 per tonne.

Golden Agri indicated that it is optimistic that the implementation of higher biodiesel blends in Indonesia starting 1 Sep will help to support as well as raise CPO prices. It maintains its target to replant 15,000 ha of estates in 2018 and expects most of the replanting to be carried out in 2H18.
Golden Agri’s palm oil inventory level stood at 609k tonnes as at end- Jun 18, higher than the 490k tonnes as at end-Mar 18 due mainly to slower sales.

We cut our earnings forecasts by 9-60% for FY18-20F to reflect lower plantation and downstream margins. In view of the poor performance against peers, we also raise our discount to SOP to 20% from 10%, which leads to a cut in our target price to S$0.25 per share.
We maintain our REDUCE call due to concerns over its poor earnings and ageing estates (average age of its estates is 17 years old).
Key upside risks are higher-than-expected CPO prices and production.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-15

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