Golden Agri-Resources - OCBC Investment 2020-03-02: Swinging Back To Profits With Strong 4Q Results


Golden Agri-Resources - Swinging Back To Profits With Strong 4Q Results

  • Golden Agri's 4QFY19 boosted by improved CPO prices and Fair Value gains.
  • Expecting flat FFB growth in FY20 due to dry weather.
  • Lower fair value estimate of S$0.22.

4QFY19 EBITDA and PATMI jumped 93.2%/202% y-o-y

  • Golden Agri Resources (SGX:E5H)’s 4QFY19 revenue rose 3% y-o-y to US$1.7b and EBITDA jumped 93.2% y-o-y to US$392m. The strong 4QFY19 performance was driven by improved CPO prices and substantial net fair value gain of US$214m on financial assets.
  • PATMI saw strong growth of 202% y-o-y to US$240m in 4QFY19, which is significantly above Bloomberg’s consensus and our forecast due to higher than expected fair value gain in accordance with IFRS 9.
  • On a full-year basis, Golden Agri’s revenue, however, was down 10% y-o-y to US$6.4b weighed by softer CPO prices (-7% y-o-y) while EBITDA increased 21.6% y-o-y and PATMI turned from a loss in FY18 to a profit of US$194m in FY19, boosted by improved performance from Palm, Laurics and Others segment and fair value gain on financial assets.
  • A final dividend of 0.58 S cents per share was declared for FY19, same as FY18.

Stronger demand for biodiesel in Indonesia

  • For FY19, Plantations and Palm oil mills’ revenue and EBITDA fell 9%/24% y-o-y to US$1.3b and US$299m respectively, weighed by lower CPO prices and lower production output from fresh fruit bunch (FFB) (-6% y-o-y) and palm product output (- 4% y-o-y) due to dry weather and replanting programme.
  • Separately, Golden Agri’s downstream business, Palm, Laurics and Others’ FY19 revenue was down 10% to US$6.4b, dragged by lower CPO prices and lower sales volume for oilseeds in China, partially offset by strong demand for biodiesel in Indonesia.
  • EBITDA, however, increased by 116% y-o-y to US$398m, on the back of improved EBITDA margin due to stronger demand for biodiesel in Indonesia, the removal of export levy in Indonesia in the last quarter of 2018, as well as higher net fair value gain on financial assets.

Impact from COVID-19 is likely to be limited

  • Golden Agri completed 17,200 hectares of replanting in FY19 vs 10,500 hectares in FY18 and targeted for up to 22,000 hectares in FY20. The FFB production outlook in FY20 is expected to be flat due to dry weather in 2019. Sales to China could be weighed by the outbreak of COVID-19, but the impact is likely to be short-term.
  • Management shared that they are likely to see ~20% decline in sales in FY20 due to lower consumption in China. However, given the small contribution of China (~13%) in terms of revenue contribution in FY19, and the overall tight supply and demand situation, management is confident that they could sell the palm oil to other markets if needed.
  • Looking ahead, we believe that the implementation of B30 program in Indonesia remains a key catalyst to stronger palm oil consumption, with usage of palm oil for biodiesel in Indonesia expecting to increase to 9.6m kilolitres in 2020 from 6.4m kilolitres in 2019.
  • After adjustments, our fair value estimate decreases from S$0.26 to S$0.22.
  • See Golden Agri Resources Share Price; Golden Agri Resources Target Price; Golden Agri Resources Analyst Reports; Golden Agri Resources Dividend History; Golden Agri Resources Announcements; Golden Agri Resources Latest News.

Chu Peng OCBC Investment Research | 2020-03-02
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