Golden Agri-Resources - RHB Invest 2020-11-13: Improving, But Still In The Red; Keep SELL


Golden Agri-Resources - Improving, But Still In The Red; Keep SELL

  • Golden Agri Resources’s 9M20 earnings came in slightly above our forecasts, but below consensus. While production continues to disappoint, this was offset by higher selling prices.
  • Golden Agri Resources’s valuations remain prohibitive, trading at 30x 2021F P/E. Keep SELL with slightly higher S$0.134 target price from S$0.13, 11% downside.

3Q20 remained in the red

  • Golden Agri Resources (SGX:E5H)'s 3Q20 remained in the red with a core net loss of USD4m, albeit an improvement from 2Q20’s core net loss of USD28m. This brought 9M20 core net loss to USD85m. We consider this to be above our FY20F net loss of USD89m, but below Street’s estimates of a USD42m loss. Despite lower-than-expected FFB output (-10% in 9M20 vs our -7% assumption) and decreased downstream profits (c.-40% y-o-y), the higher CPO prices (+23% y-o-y) and lower unit costs helped push upstream profits higher (c.+38%).
  • For FY20, Golden Agri Resources is reducing its FFB output forecast to between -5 and -10% from -5%. It expects 4Q to be much better than 3Q, growing at low double-digits q-o-q. Despite the wet La Nina weather, operations have not been hampered so far. For 2021, Golden Agri Resources guided for FFB growth of 5-10%. We reduce our FY20F FFB growth to -8% from -7%, but maintain +3% for FY21- 22.
  • Golden Agri Resources replanted 14kha in 9M20, on track to hit its target of 15-20kha.
  • Golden Agri Resources booked a unit cost of USD303.00/tonne in 9M20 (-1% y-o-y), as fertiliser application was slightly behind that of last year’s. Fertiliser tendered for 1H21 is at flattish prices y-o-y. Golden Agri Resources expects to end the year at below USD300.00/tonne, as output improves in 4Q20. We lower our cost assumptions accordingly.

The downstream division weakened

  • The downstream division weakened by > 50% q-o-q (c.-40% y-o-y) in 9M20. Due to weaker feedstock supply, sales volumes fell 8% y-o-y in 9M20. Golden Agri Resources guided for margins to improve in 4Q20, as supply should also improve, although this would be offset by higher feedstock prices.
  • On the biodiesel front, Golden Agri Resources believes payments for November and December’s supply may be slightly delayed, however, as the biodiesel fund is running low. Nevertheless, it expects there to be a change in the export tax levy soon, which will help alleviate this problem, in our view. Golden Agri Resources is expanding its biodiesel capacity by 450k tonnes (+75%), and this will come on-stream in 2H21.

We raise FY20F-22F earnings forecast

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-11-13
SGX Stock Analyst Report SELL MAINTAIN SELL 0.134 UP 0.130