Golden Agri-Resources - OCBC Investment 2018-08-15: Not So Golden For Now

Golden Agri-Resources - OCBC Investment Research 2018-08-15: Not So Golden For Now GOLDEN AGRI-RESOURCES LTD SGX:E5H

Golden Agri-Resources - Not So Golden For Now

  • Weaker palm oil prices.
  • Weaker downstream margins.
  • Weaker IDR.

Net loss of US$39m in 2Q18

  • Golden Agri-Resources (GAR) reported a 5.9% y-o-y rise in revenue to US$1.86b but saw a net loss of US$39.2m in 2Q18, bringing 1H18 net loss to US$27.2m, lower than ours and the street’s full year expectations; we were forecasting full year net profit of US$134m while Bloomberg consensus was US$156m.
  • Gross profit margin was weak at 11.8% in 2Q18 vs. 13.7% in 1Q18 and 14.6% in 2Q17; performance was impacted by weaker palm oil prices and downstream margins. Below the gross profit line, Golden Agri-Resources also sustained foreign exchange loss of US$22.2m in 2Q18 with the depreciation of the IDR against the USD, which is not surprising as highlighted by our earlier report, “Golden Agri-Resources - Dim near term outlook |”.
  • Golden Agri-Resources’s reported underlying profit was US$17m in 2Q18 and US$41m in 1H18.

~ ~ Where SG investors share

Lower CPO prices

  • The main contributor to EBITDA was plantations and palm oil mills at US$197m (-19% y-o-y) in 1H18, followed by palm and laurics at US$45m.
  • Oilseeds saw an EBITDA loss of US$4.5m in 1H18. Under plantations and palm oil mills, fresh fruit bunch and palm product output for 1H18 were lower at 4.6m tonnes and 1.3m tonnes respectively, affected by the biological slowdown (tree stress) after the high production in 2017 following the recovery from El Nino. The average international CPO (FOB Belawan) price for 1H18 was also lower at US$632/tonne vs. US$702/tonne in 1H17.
  • For palm and laurics, EBITDA was 43% lower y-o-y as CPO market prices were affected by governments’ intervention in commodity markets, such as India and Malaysia, as well as US-China trade tensions. This was coupled with untimely purchase of feedstock. Finally, the oilseeds segment was affected by lower volume and higher input prices.

Lower Fair Value of S$0.26

  • Though production is expected to increase going forward, palm oil prices remain weak. Over the longer term, we would also monitor Golden Agri-Resources’ replanting programme with its ageing plantations.
  • With the weaker-than-expected results, we lower our estimates and as such as our fair value drops from S$0.30 to S$0.26, based on 17.5x FY19F earnings.

Low Pei Han CFA OCBC Investment Research | 2018-08-15
SGX Stock Analyst Report HOLD Maintain HOLD 0.26 Down 0.300