Golden Agri-Resources - OCBC Investment 2019-11-15: Weak Results But Some Signs Of Improvement

GOLDEN AGRI-RESOURCES LTD (SGX:E5H)

Golden Agri-Resources - Weak Results But Some Signs Of Improvement

GOLDEN AGRI-RESOURCES (SGX:E5H)’s 3QFY19 revenue fell 15% y-o-y to US$1.6b and EBITDA dropped 19% y-o-y to US$106.8m, but PATMI turned positive from a loss of US$53.9m in 3QFY18 to US$0.8m this quarter. See Golden Agri Resources Announcements. The latter brings 9MFY19’s PATMI loss to US$45.6m, which is significantly lower than ours and the street’s full year forecasts.
The weak performance was attributable to continued lower crude palm oil (CPO) prices (-18% y-o-y) and lower palm product output (-5% y-o-y).
On a quarterly comparison, however, we see some improvement in Golden Agri-Resources’s performances. Golden Agri-Resources’s 3QFY19 revenue increased 1% q-o-q, and EBITDA grew 38% q-o-q to US$107m, driven by improved palm product output (+25% q-o-q) as well as higher CPO price (+2% q-o-q).

Plantations and palm oil mills’ 9MFY19 revenue fell 16% to US$929.6m, weighed by lower CPO prices but supported by higher sales volume from the sell-down of inventory. We noted that Fresh fruit production (FFP) and palm products output declined y-o-y for 9MFY19 but reported strong seasonal rebound in production/output which rose 22% and 25% q-o-q respectively.
Golden Agri-Resources’s replanted 6,400 hectares in 9MFY19 vs 3,100 hectares in the same period last year, which we believe is on track to achieve Golden Agri-Resources’s target of replanting between 10,000 to 15,000 hectares this year.
Separately, Golden Agri-Resources’s downstream business, Palm, laurics and others’ 9MFY19 revenue was down 14.1%, dragged by lower CPO prices and lower sales volume for oilseeds in China. Palm, laurics and others’ 9MFY19 EBITDA, however, increased by 115.7% y-o-y to US$138.3m, due to improved EBITDA margin on the back of stronger demand for biodiesel in Indonesia and the removal of export levy in Indonesia in the last quarter of 2018.
We expect the margin to improve further in 4QFY19, given the recovery of CPO prices.

Indonesian president Joko Widodo called for the implementation of B30 program (biodiesel with a 30% bio-content) by January 2020, which could provide a strong boost to palm oil consumption demand. Management cited the significant growth in biodiesel consumption since the implementation of B20 in September 2018 and is positive about B30, which they believe will increase the consumption to over 9 million kiloliters in 2020.
Looking ahead, we expect better 4QFY19 and FY20 due to strong demand and slower production growth of CPO which in turn could drive CPO prices up.
After adjustments, our fair value estimate decreases from S$0.27 to S$0.26. HOLD. See Golden Agri Resources Share Price; Golden Agri Resources Target Price.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-11-15

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