Golden Agri-Resources - CGS-CIMB Research 2019-05-14: Downstream Helps Lift 1Q19 Core Earnings


Golden Agri-Resources - Downstream Helps Lift 1Q19 Core Earnings

  • GOLDEN AGRI-RESOURCES LTD (SGX:E5H) reported 1Q19 core net profit of US$5.3m, which we consider to be broadly in line as we project higher output and ASP in 2H19F.
  • Plantation EBITDA fell y-o-y in 1Q due to lower ASP for palm products; however, this was offset by better profitability at its downstream division.
  • Maintain REDUCE and Target Price of S$0.23 (10% discount to SOP).
  • Our key concerns are weak earnings delivery, ageing estates and exposure to Liberia.

Golden Agri's 1Q19 core net profit broadly in line

  • GOLDEN AGRI-RESOURCES LTD (SGX:E5H) reported a 1Q19 core net profit of US$5.3m, which accounted for 7% of our core and 5% of consensus full-year net profit, respectively. We deem the results broadly in line with ours as we project higher output and CPO price in 2H19F.
  • Reported net profit was higher y-o-y at US$18.3m as the group recognised a gain of US$11.5m from the disposal of a subsidiary to a related fund that invests in technology companies.

Our core net profit vs. Golden Agri’s reported underlying profit

  • Golden Agri-Resources added back the depreciation of bearer plants of US$24m but deducted the gain from the disposal of a subsidiary of US$11m and a foreign exchange gain of US$19m to arrive at its reported underlying profit of US$12m for 1Q19.
  • However, this figure is higher than our core net profit forecast of US$5.3m in 1Q19 which stripped out depreciation charges and included forex gains of US$17.6m relating to fair value gains on foreign currency contracts entered into by its downstream division, to be consistent with our core net profit calculations for other Singapore planters.

Better downstream margin helped offset weak plantation EBITDA

  • Golden Agri-Resources reported a 0.4% y-o-y drop in its 1Q19 EBITDA as the increase in palm and laurics EBITDA was not sufficient to fully offset the weaker plantation EBITDA. Plantation EBITDA fell 35.9% y-o-y due to a 19.5% y-o-y decline in ASPs for CPO and higher estate costs.
  • The group said its 1Q19 cost of production was US$309/tonne against 1Q18/4Q18’s US$304/US$280 per tonne due to lower FFB output (-1% y-o-y from nucleus estates) and a 15% increase in fertiliser prices. Its downstream division more than doubled its EBITDA to US$59.3m on a y-o-y basis in 1Q19. However, this segment posted a 50% q-o-q decline in EBITDA due to the absence of US$100m fair value gain on unquoted securities in 4Q18.

Maintain REDUCE with an unchanged target price of S$0.23

  • We maintain our forecasts and SOP-based target price of S$0.23. We expect Golden Agri-Resources to post better earnings in subsequent quarters as fertiliser costs have been front loaded as the group said it applied 40% of its FY19 fertiliser requirement for estates in 1Q19.
  • Also intact is our REDUCE call due to concerns over its historical earnings trailing behind those reported by its industry peers, ageing estates (average age: 17 years) and potential impairment on its investment in oil palm estates in Liberia of around US$400m.
  • Key upside risks are higher-than-expected CPO prices and production.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-05-14
SGX Stock Analyst Report REDUCE MAINTAIN REDUCE 0.230 SAME 0.230