Golden Agri-Resources - UOB Kay Hian 2020-03-02: 2019 EBIT Within Expectations

GOLDEN AGRI-RESOURCES LTD (SGX:E5H)

Golden Agri-Resources - 2019 EBIT Within Expectations

Golden Agri Resources’s 2019 operating profit came in within our expectations. However, Golden Agri Resources reported a net loss of US$62m, with the negative variance coming from higher tax and losses from JVs.
The downstream operation had achieved higher operating margin at 3.4%, the highest in Golden Agri Resources’s history, and is likely to be maintained on the back of the biodiesel demand in Indonesia.

Golden Agri Resources (SGX:E5H) reported net profit of US$242m in 4Q19. Excluding the exceptional items (net fair value gain on financial asset: US$213m, forex gain: US$14m and others), core net profit came in at US$23m.
Golden Agri Resources reported a net loss of US$62m for 2019, excluding fair value gain of financial asset of US$214m, which is below our expectation. Having said that, operating profit is in line with our full-year assumption (at 100%), and the negative variance came mainly from higher tax and losses from JVs.

Golden Agri Resources registered a better operating profit q-o-q for both segments. The improvement in the plantation segment was mainly supported by higher selling prices despite lower FFB production in 4Q19.
On the downstream operation, Golden Agri Resources achieved a high margin in 4Q19 on the back of higher sale volume with strong biodiesel demand.

Golden Agri Resources has proposed a final dividend of 0.58 S cents, which will be payable on 18 May 20.

Golden Agri Resources’s FFB production dropped 6% y-o-y in 2019, lower than our forecast of a 3% y-o-y drop, primarily affected by the dry weather conditions and replanting programme. Management has guided for 2020 production growth to remain flat y-o-y in view of the young areas in Indonesia. However, we remain conservative by factoring in FFB production of -3% y-o-y, on the back of its aggressive replanting programme and the impact of the dry weather.
In addition, Golden Agri Resources‘s estates have an older average age of 16 years which may take a longer time to recover from water stress.

Golden Agri Resources registered a high operating margin of 3.4% for 2019, which is the highest in its history on the back of strong demand for biodiesel in Indonesia and good destination sales. Management guided that the good operating margin in 2019 is likely to remain stable in 2020, with downstream utilisation rate at 100%.
In addition, Golden Agri Resources was allocated 779,302kl (+53% y-o-y) of biodiesel production for 2020 under the B30 biodiesel mandate. With this, Golden Agri Resources will not be able to export its biodiesel, and it will be completely for domestic use only in 2020.
Golden Agri Resources used to export about 10% of its biodiesel production to China. The group starts to expand its Kalimantan biodiesel plant, where Golden Agri Resources is increasing their annual capacity of 300,000kl to 600,000kl. The expansion is expected to be completed by mid-2021.

For 2020, Golden Agri Resources targets to replant 20,000ha , while capex will be about US$250m, with most of it to be used for replanting programme.

We have revised down our earnings to US$111m, US$92m, and US$81m for 2020, 2021, and 2022 respectively, factoring in a reduction in downstream margin from 4% to 3%.

Maintain HOLD and lower target price of S$0.22 (previous: S$0.28), peg our target price at 0.46x P/B, which is 2SD below its 5-year mean PE of 0.72 in view of Golden Agri Resources’s high earnings volatility and low earnings visibility. Golden Agri Resources’s more mature plantation (average age at 16 years) limits production growth prospects and its downstream operation is more volatile.
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.

Leow Huay Chuen UOB Kay Hian Research | Jacquelyn Yow UOB Kay Hian | https://research.uobkayhian.com/ 2020-03-02

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