Golden Agri-Resources - RHB Invest 2020-03-02: Turnaround To The Black; Keep BUY

GOLDEN AGRI-RESOURCES LTD (SGX:E5H)

Golden Agri-Resources - Turnaround To The Black; Keep BUY

Maintain BUY, new SOP-based Target Price of SGD0.25 from SGD0.27, 25% upside.
Golden Agri Resources’s core earnings turned around to profitability in 4Q19, coming in better than our expectations, but below the Street estimate. We expect Golden Agri Resources to remain in the black from hereon, on better CPO prices.

Golden Agri Resources (SGX:E5H)'s 4Q19 turned around to profitability after six quarters of losses, recording a core net profit of USD21.6m, and bringing the FY19 core net loss to USD64m. This was better than our FY19 core net loss projection of USD107m, but significantly above the Street’s USD17m estimate. FFB production declined 6% y-o-y in FY19, while CPO prices were down 8%.
Golden Agri Resources declared a net DPS of 0.58 SG cents, which is a 20% net payout and implies a 2.8% dividend yield.

For FY20, Golden Agri Resources has revised its FFB output forecast to flat (from -3% previously), coming from a lower base in 2019. In Jan-Feb so far, management noted that FFB output was also flattish y-o-y. We cut our FFB growth to -2% (from +3%) for FY20F, but maintain 3% growth for FY21F.
It also replanted 17,200ha in 2019, over and above its 15,000ha target for 2019. For 2020, it is targeting 15-20k ha of replanting.
The company booked a unit cost of USD304/tonne in FY19 (+6.3% y-o-y), on higher fertiliser prices and lower yields. For 2020, it expects unit costs to remain flattish at current levels.

In FY19, the downstream division recorded an EBITDA margin of 3.6% (vs 1.2% in FY18). Golden Agri Resources’s 600k-tonne capacity biodiesel plant was running at above 100% in 4Q19, with 85-90% of this going to the local market. For FY20, it has an allocation of 780k kilolitres (+41% from FY19’s 554k).
Golden Agri Resources’s new 600k-tonne biodiesel plant in Kalimantan is targeted to be ready by mid-2021, and will cater to the Indonesian Government’s aggressive biodiesel rollout. Golden Agri Resources believes B40 is achievable on the back of the successful test-runs so far.
On the adequacy of the Indonesian biodiesel fund, Golden Agri Resources believes there is a possibility that the Government may also use the export duty (which was at USD18.00/tonne in Feb) to also subsidise biodiesel, if need be.
Management expects FY20’s downstream EBITDA margins to decline from 4Q19, back to normal levels of 2-3%, due to higher feedstock costs.

We pare down our FY20-21 forecasts by 3-7% after updating for the lower FFB output growth. We also introduce FY22 forecasts in this report.
Maintain BUY, with a lower SOP-based Target Price of SGD0.25. We apply an EV/ha of USD5,000/ha for its plantation assets and target P/E of 15x FY20F for its downstream division. This is at the lower end of its peer range of USD6,000-14,000/ha, which we believe is justified – given its older age profile.
The downstream target P/E of 15x is in line with peers’ 12-15x.
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.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-03-02

SGX Stock Analyst Report BUY MAINTAIN BUY 0.25 DOWN 0.270