Golden Agri-Resources - CGS-CIMB Research 2020-08-14: Weak Downstream Profit Led To Wider Losses

GOLDEN AGRI-RESOURCES LTD (SGX:E5H)

Golden Agri-Resources - Weak Downstream Profit Led To Wider Losses

Golden Agri Resources’s 1H20 core net loss of US$93m was below expectation.
The weaker results were due to lower-than-expected downstream earnings.
Reiterate REDUCE with unchanged Target Price of S$0.12 due to concerns over weak results, potential write-down in value of its investments and ageing estates.

Golden Agri Resources (SGX:E5H)’s core net loss of US$93m in 1H20 is below our/consensus FY20F core net profit forecast of US$20m/US$25m. This is a disappointment as we had been expecting Golden Agri Resources to benefit from higher CPO prices in 1Q20. The good news is that we estimate Golden Agri Resources’s 2Q20 core net loss narrowed to US$39m, from US$54m in 1Q20.
The weaker than expected 1H20 earnings were due to lower downstream contribution and lower than expected FFB output from its estates.
1H20 reported losses of US$157m were higher than its core net loss due to US$31m deferred tax expenses, US$45m forex losses, US$4m net loss from biological assets and US$5m impairment loss on its shipping business.

Golden Agri Resources's downstream EBITDA fell 42% y-o-y to US$58m in 1H20 as it was negatively impacted by higher input prices due to severe supply chain disruptions. We gather that Golden Agri Resources’s downstream was stocking up on CPO (its key raw material) in anticipation of a price rally in 1Q20 on tight supply. However, it was caught by the COVID-19 outbreak, which led to demand disruption in its key destination markets, such as China and India, due to various restricted movement orders. This had affected its ability to sell its high-priced CPO inventory.
Golden Agri Resources revealed that the EBITDA of its downstream business was only US$5m in 1Q20 but has improved sequentially to US$53m in 2Q20.

Golden Agri Resources posted a 7% drop in FFB output from its nucleus estates in 1H20, which is below the group’s guidance for a flat output As a result, the group is revising down its FFB output guidance for FY20 to -5%. The group revealed that this was due to dry weather experienced at its estates in 2019 and its plans to replant 15k to 20k ha of estates.
Overall, EBITDA from plantation rose 36% y-o-y to US$132m as higher CPO prices more than offset lower FFB production. Golden Agri Resources is targeting US$300/tonne costs of production for 2020F which is lower than 1H20’s US$308 per tonne.

We cut our FY20-21F forecasts to a net loss from net profit to reflect the deferred tax and lower FFB output. We expect the group to deliver stronger 2H performances due to higher FFB output and downstream profit.
We keep our target price for Golden Agri Resources, which is based on 50% discount to its SOP and our REDUCE rating on the stock due to concerns over its weak earnings relative to peers.
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.
Key upside risks are higher CPO prices and downstream margins.

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-14

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