Golden Agri-Resources - CGS-CIMB Research 2020-03-02: Fair Value Gain On Financial Assets Boosts 4Q Profit


Golden Agri-Resources - Fair Value Gain On Financial Assets Boosts 4Q Profit

  • Golden Agri Resources’s FY19 core net loss of US$29m was lower than our core loss forecast of US$32m but larger than consensus’s US$17m loss projection.
  • Downstream delivered better results, which more than offset lower plantation earnings. Reported earnings were higher, thanks to Fair Value gain of US$214m.
  • Upgrade to HOLD from Reduce after 21.5% share price decline over past 12M as we see share price support from its NBV/share of S$0.49 as at end-2019.

4Q19 returns to the black, pushing FY19 results above expectations

  • Golden Agri Resources (SGX:E5H) reported a final core net loss of US$29m, lower than our full-year core net loss forecast of US$32m but higher than consensus forecast of a net loss of US$17m for 2019.
  • The better performance was due mainly to stronger-than-expected downstream earnings in 4Q, which trumped the lower-than-expected output as Golden Agri Resources registered a 6% drop in FFB output against guidance of -3%.
  • Golden Agri Resources proposes a final dividend of S$0.0058 per share in FY19, in line with our expectations.

Explaining the Fair Value gain of US$214m on financial assets in 4Q19

  • Golden Agri Resources returned to profit in 4Q19 from a loss of US$9.2m in 3Q19, thanks mainly to higher CPO price, reduction of palm inventory and better downstream contribution.
  • For the full year, the group posted a net loss of US$29m due mainly to lower CPO price and production. The key booster for its final reported earnings was a US$214m net fair value gain on financial assets (mainly in its non-listed investment in a technology fund which was revalued by third parties) in 2019 against US$132m in 2018.
  • The value of its investment in the technology fund is around US$400m while the total value of investments in funds (including Liberia) is around US$1.5bn (S$0.16 per share).

Cuts production guidance to flat vs. +3% for 2020

  • During the results teleconference, Golden Agri Resources said that it expects FFB output from its nucleus estates to be flat in 2020 vs. previous guidance of +3% y-o-y. The group replanted 17,200ha of its estates in 2019 and is targeting to replant 20,000ha for 2020.
  • The group expects its downstream business to benefit from the B30 mandate in Indonesia but this is partly offset by concerns about a potential 20% drop in sales volumes to China due to COVID-19. The group also predicted that CPO could trade at US$650-700 per tonne in 2020 on the back of tight supply.
  • Golden Agri Resources revealed that the Indonesian government could consider realigning the export tax and export levy in Indonesia if there is insufficient CPO and, in extreme cases, there is flexibility to lower the blending rate.

Upgrade to Hold, although Target Price cut to S$0.21

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2020-03-02
SGX Stock Analyst Report HOLD UPGRADE REDUCE 0.21 DOWN 0.230