GOLDEN AGRI-RESOURCES LTD (SGX:E5H)
Golden Agri-Resources - Dragged Down By Downstream Unit; Still SELL
- Golden Agri Resources's 1Q20 earnings disappointed, coming from significantly lower downstream profits. Although 2Q20 downstream profits should improve, we now expect Golden Agri Resources to record losses for FY20.
- Keep SELL and SOP-derived SGD0.125 Target Price, 20% downside.
Golden Agri Resources' 1Q20 reversed back into losses
- Golden Agri Resources (SGX:E5H)'s 1Q20 reversed back into losses after one quarter of profit in 4Q19, with a core net loss of USD25m. This was below both our and consensus’ expectations of FY20 earnings of USD57-69m. The disappointment came from significantly lower downstream contributions (almost 100% lower y-o-y), offset by flattish upstream numbers. FFB production declined 5% y-o-y in 1Q20, while CPO prices rose 28%.
- For FY20, Golden Agri Resources maintains its FFB output forecast at flat y-o-y. We maintain our FY20 FFB growth forecast at -2%, and 3% for FY21F-22F.
- Golden Agri Resources replanted 6k ha in 1Q20, on track to hit its lowered 10k ha replanting target for 2020 from 15-20k ha previously.
- Golden Agri Resources booked a unit cost of USD307.00/tonne in 1Q20 (-0.6% y-o-y), which does not include the USD57.00/tonne export tax and levies it continued to pay in 1Q20.
Downstream division disappointed.
- Although Golden Agri Resources did not divulge the segmental breakdown in this abbreviated set of quarterly results, we understand the downstream unit booked low single-digit EBITDA from 4Q19 and 1Q19’s USD94m and USD60m. This was due to mark-to-market inventory losses and lower margins, as selling prices for its consumer pack products were lowered due to weaker demand. Golden Agri Resources guided for a better 2Q, as the higher-priced inventory was cleared in 1Q.
- On the biodiesel front, Golden Agri Resources is confident the Indonesian Government will continue with the B30 mandate, as talks are ongoing on how to fund output for 2020. This could be done either via a straight-up subsidy or higher export levies. Based on management’s estimate, the biodiesel fund will run out of funds by 4Q. Nevertheless, Golden Agri Resources continues to supply Pertamina according to its 780k kilolitre allocation for 2020 (+41%) from FY19’s 554k kilolitres.
Retain SELL and SOP-based SGD0.125 TP.
- We now expect Golden Agri Resources to post FY20 losses after we lower our downstream earnings estimates and raise CPO costs after adjusting for the higher export levy. We now project USD36m in core net losses for FY20, before returning to profitability in FY21.
- 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.
- We now use 0.5x P/BV to value the downstream wing from 15x 2020F P/E while applying a USD2,000 EV/ha valuation for its upstream unit. This is lower than its peers, which are trading at USD5,000-12,000/ha. We deem this justified, given Golden Agri Resources’s older age profile.
- We highlight that Golden Agri Resources is highly sensitive to CPO price movements, where every MYR100.00/tonne impacts earnings by 8-10%.
Singapore Research
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-05-14
SGX Stock
Analyst Report
0.125
SAME
0.125
