Golden Agri-Resources - CGS-CIMB Research 2021-02-26: Stronger Downstream Margin Lifted 2H20 Profit

GOLDEN AGRI-RESOURCES LTD (SGX:E5H)

Golden Agri-Resources - Stronger Downstream Margin Lifted 2H20 Profit

Golden Agri-Resources’s final core net profit of US$128m was above our and consensus estimates due to better-than-expected CPO price and downstream earnings. The group guided for higher output and better downstream margin in FY21.
We upgrade Golden Agri-Resources to HOLD from Reduce with a higher target price of S$0.20 in view of improving earnings prospects due to better CPO price.

Golden Agri-Resources (SGX:E5H)’s core net profit of US$128m in FY20 (strongest since FY14) was significantly above our core net loss forecast of US$72m and consensus core net profit forecast of US$2m.
The stronger-than-expected full-year earnings were mainly due to higher-than-expected CPO price, which boosted its plantation and downstream earnings in 2H20. The downstream business gained from plans to change the export levy structure and timely purchase of raw materials.
Final reported net profit of US$32m was much lower than its core net profit due to US$67m deferred tax expenses, US$31m unrealised forex losses, US$16m net gain from biological assets, US$7m fair value losses on financial assets and US$5m impairment loss on its shipping business.
Golden Agri-Resources proposes a final dividend of S$0.0048 per share in FY20, above our expectations.

Golden Agri-Resources posted a 40%/39% y-o-y improvement in its 2H20/FY20 plantation EBITDA to US$284m/US$416m, driven mainly by higher CPO prices, which offset the weaker FFB output. The group recorded higher y-o-y average CPO price of US$755/US$716 per tonne for 2H20/FY20, which more than offset the 2%/4% drop in FFB output from its nucleus estates.
The stronger plantation division earnings more than offset its weaker downstream division earnings, which were hit by the lower availability of palm oil feedstock in the industry and logistics issues.
H-o-h, Golden Agri-Resources posted a significant jump in both its plantation and downstream EBITDA due mainly to higher selling prices for palm products, higher FFB output and stronger downstream margins. This helped boost its 2H20 core net profit to a whopping US$221m vs a US$93m loss in 1H20.

Golden Agri-Resources expects CPO prices to be supported by the tight edible oil supply situation, which is likely to prevail in 1H21.
Golden Agri-Resources guided for a cash cost of US$300 per tonne for FY21F vs US$296 per tonne achieved in FY20. It indicated that fertiliser prices have increased but this will be offset partially by higher FFB yield.
Golden Agri-Resources is of the view that the Indonesian government could consider lowering the current high export levy for palm products in Indonesia if there are more than sufficient funds in the biodiesel fund amid rising crude oil prices. The review will likely take place on a quarterly basis.
Golden Agri-Resources recently bought two estates with total planted area of 35k ha. The acquisition comes with two palm oil mills.
Golden Agri-Resources’s focus in terms of capex would be on expanding its biodiesel capacity and replanting, with a total budgeted capex of US$150m-200m.
Golden Agri-Resources was allocated 624,000 tonnes of biodiesel volumes from Pertamina for FY21 as part of the B30 programme. This is similar to what it was allocated in FY19 of 625,000 tonnes.

Golden Agri-Resources is targeting FFB output growth of 5% y-o-y from its nucleus estates in FY21F, driven by improved yields and contribution from its newly-acquired estates. The group recently bought 34,000ha of brownfield estates at EV/ha of US$14k, which helped improve the overall age profile of its estates to 16 years from 17 years previously. The group replanted 18,400ha of its estates in 2020 and targets 15,000 to 20,000ha replanting for 2021. It is positive on refining margin following recent changes in Indonesia’s export levy structure.
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 raise Golden Agri-Resources's FY21-22F net profit forecasts for our recently revised CPO price forecasts of US$721-US$670/tonne and better downstream margins.
We raise our SOP-based target price to S$0.20 for Golden Agri-Resources as we lower the discount rate to 40% from 50% to reflect improving CPO price prospects. We also raise our rating for Golden Agri-Resources to HOLD from Reduce.

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-26

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