Golden Agri-Resources - UOB Kay Hian 2019-02-28: 2018 Poor Results


Golden Agri-Resources - 2018: Poor Results

  • Golden Agri-Resources reported core net losses of US$24m for 4Q18 and US$52m for 2018, below expectations. The full-year loss was mainly due to higher interest expense, losses from a JV and a higher effective tax rate. EBITDA was still positive.
  • Despite lower FFB production growth, 2019 could be a better year due to firmer selling prices and higher downstream sales volume.
  • Maintain SELL. Target price: S$0.21.


Results within expectations.

  • GOLDEN AGRI-RESOURCES LTD (SGX:E5H) reported net profit of US$79m in 4Q18 and net loss of US$2m for 2018.
  • Excluding net gain/loss from changes in fair value of biological assets, depreciation of bearer plants, IFRS 9-related valuation gains, and other exceptional items, it was core net losses of US$24m for 4Q18 and US$52m for 2018. This was mainly due to higher interest expense, losses from a JV which just commenced operation (oleochemical) and a higher effective tax rate due to deferred tax from the devaluation of the rupiah, and amortisation related to revaluation of assets in 2016.

Final dividend of 0.58 S cent/share.

Plantation and palm oil mills: Weaker q-o-q and y-o-y.

  • Segmental EBITDA was weaker q-o-q and y-o-y in 4Q18 mainly due to lower CPO selling prices amid high inventory level as at end-18, partly mitigated by high FFB production.
  • Golden Agri-Resources’ total palm product output hit 3m tonnes for the first time (+12% y-o-y) with palm product yield rising from 5.7 tonnes/ha in 2017 to 6.2 tonnes/ha in 2018.

Downstream: Lower revenue but higher EBITDA yoy.

  • Segment revenue was down y-o-y, mainly due to weakening CPO selling prices and lower sales and crushing volume for oilseeds in China. However, this was offset by the strong biodiesel demand in Indonesia with the mandatory B20 biodiesel blending for both the PSO and non-PSO segments.


Management expects lower FFB production growth of 5% yoy for 2019.

  • With 2 consecutive years of high FFB production growth, oil palm trees were under stress and are expected to have lower FFB yield in 2019. Hence, management has guided a lower FFB production growth of 5% for 2019.
  • As more oil palm trees are more than 18 years old, this might also affect the company’s FFB production in 2019.

Higher biodiesel allocation for GGR.

  • The total biodiesel allocation for Golden Agri-Resources for both the PSO and non-PSO segments from May 18 to Dec 18 was 259,306kl. Golden Agri-Resources has also secured an allocation of about 531,000kl for 2019.
  • We expect the biodiesel allocation will continue to contribute positively to Golden Agri-Resources’ earnings. Biodiesel production volume in Indonesia was 4.0m kl in 2018 and is expected to increase to 6.2m kl in 2019. With the Indonesian government targeting to implement B30 biodiesel blending by 2020, we expect the biodiesel division to generate stronger earnings. Golden Agri-Resources’ biodiesel plants were at full utilisation in 4Q18.

Larger replanting target for 2019.

  • Management targets to replant 15,000ha with 2,000ha of new planting in 2019. For 2018, Golden Agri-Resources replanted 10,500ha with newer-generation higher-yielding seeds.

Capex of US$250m for 2019.

  • Management guided US$250m in capex for 2019, of which US$150m is for the plantation segment, mainly for replanting and to increase milling capacity. The remaining US$100m is for the downstream segment for further integration and streamlining of processes.


Maintain earnings forecasts.

  • We raise our net profit forecast by 3% for 2019 after putting in the 2018 operational data.
  • We expect EPS of 1.3 US cents, 1.6 US cents and 1.8 US cents for 2019-21 respectively.


  • Maintain SELL with a higher target price of S$0.21, pegged at 11x 2019F PE, or -2SD of its five-year mean. We ascribe a lower PE now as Golden Agri-Resources’s earnings volatility is high and less visible than peers.
  • Maintain SELL as Golden Agri-Resources’ more mature plantation (average age at 16 years) limits production growth prospects and its downstream operation is more volatile.


  • Better-than-expected FFB growth.

Leow Huay Chuen UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2019-02-28
SGX Stock Analyst Report SELL MAINTAIN SELL 0.21 DOWN 0.200