Golden Agri-Resources - RHB Invest 2019-08-15: Likely To Remain In The Red In FY19


Golden Agri-Resources - Likely To Remain In The Red In FY19

  • Reiterate SELL with SOP-based Target Price of SGD0.22, 25% downside.
  • GOLDEN AGRI-RESOURCES (SGX:E5H)’s core earnings remained in the red in 2Q19, coming from weaker FFB output, lower prices and higher costs. We now expect FY19 to remain in the red, with earnings only returning to the black in FY20.
  • Valuations too, remain expensive at the current juncture.

2QFY19 core losses widened, with USD49.7m of losses.

  • This was significantly below our previous FY19 profit expectation of USD28m and consensus’ projection of USD79m. The main reason was lower-than-expected FFB output (-5% in 1H19 vs our projected +3% for FY19) caused by dry weather in parts of Kalimantan, as well as losses from its joint ventures.
  • Management has lowered its 2019 FFB growth guidance to flat (from 4% previously), as it expects higher output in 2H19 coming from the seasonal peak.
  • Given the continued dry weather (dry for two months already) it is seeing in Kalimantan currently, we are not as optimistic and lower our FFB growth target to -2% for FY19 (from +3%), while keeping our FY20-21 growth projections intact at 3% pa. Our unit cost assumptions have been raised accordingly.

Golden Agri has replanted 3,300ha in 1H19

  • Golden Agri-Resources has replanted 3,300ha in 1H19, behind its 15,000ha target for 2019. Given the current CPO price environment, management is reducing its replanting target to 10-15k ha, in order to conserve some cash.
  • Golden Agri-Resources achieved unit costs of USD311/tonne in 1H19 (+3% y-o-y), on higher fertiliser prices and lower yield. For 2019, it is maintaining its USD300/tonne cost guidance (+5% y-o-y), on the back of higher yield in 2H19.

Should not be affected by EU biodiesel tax.

  • For the downstream division, management expects downstream margins to remain at around 3-4%, with higher biodiesel contributions from increased mandates in Indonesia. In 1H19, the downstream division recorded EBITDA margins of 3.2% (up from 1.4% in 1H18).
  • Golden Agri-Resources’ 600,000 tonne capacity biodiesel plants are running at almost full capacity now, with 85% of this going to the local market. It does not expect to be affected significantly by the EU tax on Indonesian biodiesel, as the bulk of its biodiesel exports go to China currently.

2019 forecast now a loss, while FY20-21 forecasts are cut by 30-40%

  • 2019 forecast now a loss, while FY20-21 forecasts are cut by 30-40%, after adjusting for our latest in-house FX assumptions, lowered FFB output and higher unit cost assumptions.

Maintain SELL with relatively unchanged SOP-based TP of SGD0.22

  • We apply an EV/ha valuation of USD5,000/ha for Golden Agri-Resources’ plantation assets and target P/E of 10x FY20F for its downstream division. This is at the lower end of its peers’ range of USD6,000-14,000/ha, which we believe is justified given its older age profile.
  • The downstream target P/E of 10x is in line with its peers’ 10-12x.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-08-15
SGX Stock Analyst Report SELL MAINTAIN SELL 0.22 DOWN 0.230