Golden Agri-Resources - CGS-CIMB Research 2019-11-14: Forex Gains Helped Lift 3Q19 Reported Profit

GOLDEN AGRI-RESOURCES LTD (SGX:E5H)

Golden Agri-Resources - Forex Gains Helped Lift 3Q19 Reported Profit

Golden Agri-Resources results were below our expectation as it reported 9M19 core net loss of US$66m due to higher than expected estate costs.
Plantation EBITDA fell 45% in 9M due to lower ASP for palm products and higher costs; this was partially offset by better downstream profit (+116%).
Maintain REDUCE. Our Target Price of S$0.23 is based on 10% discount to SOP. Our concerns are weak earnings delivery, ageing estates and exposure to Liberia.

GOLDEN AGRI-RESOURCES (SGX:E5H) reported a 9M19 core net loss of US$66m, which is wider than our full-year core net loss forecast of US$25m and below consensus forecast of a net profit of US$15m for 2019. The miss was mainly due to higher than expected estates costs. See Golden Agri Resources Announcements.
The core net loss figure differs from its reported net loss of US$46m for 9M19 as we exclude
1. an exceptional gain of US$11m,
2. a deferred tax income of US$2m,
3. unrealised forex gain of US$6.5m; and
4. a net gain from fair value of biological assets of US$0.4m.

Several reasons contributed to the core losses registered in 3Q19 of US$9.2m vs. 3Q18’s net profit of US$10.9m. Firstly, FFB output from its nucleus estates fell by 9.4% y-o-y in 3Q19 due to lower yields. Secondly, ASP achieved for its CPO products fell by 12% y-o-y to US$537 per tonne, while cost of production rose 11% y-o-y to US$295 per tonne. This was partially offset by an inventory selldown.
Its palm inventory fell from 569k tonnes at end-Jun to 525k tonnes at end-Sep 2019. As a result, plantation EBITDA fell 35% y-o-y in 3Q19 and 45% y-o-y in 9M19. The stronger downstream profit of US$38m in 3Q19 was only able to partially offset the weaker plantation profit.

At the results teleconference, Golden Agri-Resources said that it expects FFB output from its nucleus estates to decline 3% y-o-y in 2019 from previous guidance of flat output. It projects 2020 output to fall by another 3% due to dry weather and replanting plans. The group replanted 6,400ha of its estates in 9M19 and is targeting to replant 15,000ha for 2019.
Golden Agri-Resources also explained that its downstream business benefited from the suspension of export levy in 1Q19, higher biodiesel profit margin and volume as well as contribution from India. The group also predicted that CPO price could hit US$700/tonne in 2020.

We raise our FY19 net loss forecast to reflect higher estates costs. Our SOP-based target price stays at S$0.23 despite rolling over to end-2020. See Golden Agri Resources Share Price; Golden Agri Resources Target Price.
We expect Golden Agri-Resources to post better earnings in 4Q19 due to higher CPO selling price. However, we keep our Reduce call due to concerns over its earnings trailing behind those reported by its industry peers, ageing estates (average age: 17 years) and potential impairment on its investments in oil palm estates in Liberia where it has invested over US$200m.
Key upside risks are higher-than-expected CPO prices and production.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-14

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