Golden Agri-Resources - RHB Invest 2019-02-27: Ending The Year In The Red; Still A SELL


Golden Agri-Resources - Ending The Year In The Red; Still A SELL

  • Reiterate SELL with unchanged Target Price of SGD0.23, 20% downside.
  • Golden Agri-Resources’ earnings reversed further into the red in 4Q18, with FY18 core net loss coming in significantly below expectations.
  • While we believe 2019 will be a better year after an extremely weak 2018, we expect earnings to take some time to recover to its previous base of > USD200m. This will likely be after its landbank is revamped via aggressive replanting and cost management.

FY18 core earnings reversed further into the red

  • GOLDEN AGRI-RESOURCES LTD (SGX:E5H)’s FY18 core earnings reversed further into the red, with USD91.3m of losses from a profit of USD40m in FY17. This was significantly below expectations, and was mainly due to lower CPO prices (-17% y-o-y), and weaker refining margins.
  • Effective tax rates also ballooned on deferred tax expenses from the devaluation of the IDR, and amortisation related to revaluation of assets in 2016. Total FFB growth in FY18 was +8% y-o-y (nucleus & plasma).
  • Golden Agri-Resources stopped breaking down its oilseeds division’s revenue and profit, having included it into the palm, laurics and others segment in 4Q18.
  • Net DPS of SGD0.058 was declared in 4Q18, which implies a net payout of > 100%, and a net yield of 2%.

For 2019, management is guiding for FFB growth of below 5%, post the higher-base in 2018.

  • This is in line with our FFB growth projections of 3%. Golden Agri-Resources intends to ramp up replanting activities, targeting to replant 15,000ha in 2019 (from 10,500 ha in 2018 and 5,000-7,000ha pa previously). This is aimed at rejuvenating its tree age profile, which is currently at around 16 years on average. We believe a more significant impact from the aggressive replanting activities will only be seen 3-4 years later.
  • Golden Agri-Resources achieved unit costs of USD286/tonne in FY18 (-4% y-o-y), on improved FFB output. For 2019, it expects costs to rise on stronger fertiliser prices (+15%) and higher minimum wages (+10%). However, it continues to target unit costs of below USD300/tonne.

Better margins in store for downstream segment.

  • For the downstream division, management is guiding for better margins going forward, on higher biodiesel contributions from the increased mandates in Indonesia. Golden Agri-Resources’ biodiesel allocation for 2019 is at 531,000 kilolitres (+82% y-o-y from 2018’s 292,000), which would enable it to run at almost 100% capacity.
  • FY19-20 forecasts cut by 12-14% after imputing higher unit costs (+5-7%) and lower refining margins (post change in export tax structure in Indonesia).

Maintain SELL with unchanged SOP-based Target Price of SGD0.23

  • We apply an EV/ha valuation of USD5,000/ha for Golden Agri-Resources’ plantation assets and a target 2019F P/E of 10xfor its downstream division. This is at the lower end of its peers’ range of USD6,000-14,000/ha – given its older age profile, we consider the discount appropriate.
  • The downstream target P/E of 10x is in line with its peers’, which are between 10-12x.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-02-27
SGX Stock Analyst Report SELL MAINTAIN SELL 0.230 SAME 0.230