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

GOLDEN AGRI-RESOURCES LTD (SGX:E5H)

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.

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 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 Golden Agri Resources's FY20F-22F earnings forecast by 5.9-14.5% after reducing our cost assumptions, but lowering our FY20 FFB forecasts.
Still SELL. We raise our Golden Agri Resources's SOP-based target price to a slightly higher S$0.134 based on a slightly elevated EV/ha of USD2,300 for the plantation wing from USD2,200 and unchanged 0.5x P/BV for the downstream unit.
Golden Agri Resources’s P/E remains prohibitive, at 30x 2021F.
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.

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