Golden Agri-Resources - CGS-CIMB Research 2020-11-13: Swung Back To Core Net Profit In 3Q20


Golden Agri-Resources - Swung Back To Core Net Profit In 3Q20

  • Golden Agri-Resources’s 9M20 reported net loss of US$162m was in line with expectations.
  • Excluding its forex loss of US$14m, we estimate Golden Agri-Resources returned to the black, with US$9m net profit in 3Q20, due mainly to higher CPO prices.
  • We expect a stronger 4Q20F on higher prices. But we see concerns over higher export levy and funding issues for Indonesia’s B30 mandate in 2021F.

Golden Agri-Resources's 3Q20 results broadly in line – lifted by better CPO prices

  • Golden Agri-Resources (SGX:E5H) reported 9M20 net loss of US$162m, broadly in line with our and Bloomberg consensus FY20 forecasts of US$72m and US$43m, respectively.
  • We expect Golden Agri-Resources to report higher earnings in 4Q20F on the back of higher CPO prices and production. We estimate its 3Q20 net profit at US$9m, if we exclude the disclosed forex loss of US$14m. However, we are not able to estimate the core net profit as Golden Agri-Resources did not provide full disclosure of other non-core items like fair value gain/losses on biological assets or any provisions or gains from other activities in its 3Q highlights.

Gain from better-than-expected CPO price offsets lower production

  • Golden Agri-Resources posted a 16%/18% y-o-y/ q-o-q improvement in EBITDA to US$124m in 3Q20, driven mainly by higher estate earnings (which accounted for around 80% of total earnings).
  • The key surprise in the 3Q20 results was the weaker-than-expected FFB output, but this was offset by stronger-than-expected CPO prices. Golden Agri-Resources recorded higher average CPO price of US$685 per tonne (+28% y-o-y, +3% q-o-q), which more than offset the lower FFB output from its nucleus estates of 1.8m tonnes tonnes in 3Q20 (-15 y-o-y, +13% q-o-q).
  • We understand that its downstream business in 3Q20 was weaker q-o-q due to lower availability of CPO supplies from third parties, as FFB yields from their estates were impacted by drought experienced in the previous year and lower fertiliser applications by farmers.

FFB output guidance lowered; it now expects 5-10% decline in FY20

  • FFB output from its nucleus estates dropped 10% y-o-y in 9M20, worse than its -5% guidance. As a result, Golden Agri-Resources now guides for FFB output to decline 5-10% in FY20F; it also introduced its FY21F output growth guidance of 5-10%.
  • Golden Agri-Resources revealed that the lower output in 3Q20 was because the dry weather experienced in 2019 had larger-than-expected adverse impact on its yields, resulting in its peak harvest season shifting to 4Q20, from the typical 3Q. It also revealed that it has replanted 14,000 ha of estates in 9M20 in line with its target of 15-20k.
  • Golden Agri-Resources highlighted that it has achieved over 88% traceability to plantation as at end-3Q20 vs. 68% at end-4Q19. It also highlighted that its production costs fell in 3Q20 to US$293 per tonne due to lower fertiliser costs. It is optimistic that CPO prices could touch US$800 per tonne in 2021F.
  • We maintain our earnings forecasts, target price (based on 50% discount to its SOP), and REDUCE rating on Golden Agri-Resources 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.
  • Key potential de-rating catalysts are a sharp decline in CPO prices, significant nesia export levy, sharp drop in CPO demand due to restricted movements.

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-13
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