GOLDEN AGRI-RESOURCES LTD (SGX:E5H)
Golden Agri-Resources - Higher Output & Prices Boost 1Q Profit
- Golden Agri-Resources’s 1Q21 reported net profit of US$41m was above our expectations.
- The group posted a stronger EBITDA y-o-y thanks to higher CPO prices and output. However, EBITDA fell q-o-q due to lower output and downstream profit.
- We downgrade Golden Agri-Resources to REDUCE from Hold as recent Golden Agri-Resources's share price gains have already fully priced in the improving CPO price prospects, in our view.
Golden Agri-Resources's 1Q results above our forecast due to higher output
- Golden Agri-Resources (SGX:E5H) reported a 1Q21 net profit of US$41m, which appears to be ahead of our full-year forecasts of US$145m but below Bloomberg consensus net profit forecast of US$298m. We attribute the better-than-expected earnings to stronger-than-expected production in 1Q21. Excluding disclosed forex loss of US$15m, Golden Agri-Resources would have posted a higher net profit of US$56m in 1Q21.
- We expect the current strong CPO price to drive 2Q upstream earnings, through this could be partially dragged down by weaker downstream profit.
Higher CPO price and production the key earnings driver
- Golden Agri-Resources posted a 176% y-o-y improvement in EBITDA to US$232m in 1Q21, driven mainly by higher estate earnings thanks to higher CPO prices and production. However, EBITDA fell 35% q-o-q due to lower production and downstream profit.
- The key surprise in 1Q21 was stronger-than-expected FFB output, due partly to acquisition of new estates and improved yields from its estates that were impacted by drought in 1Q20. Golden Agri-Resources recorded a higher blended average CPO price of US$919 per tonne (+31% y-o-y, +17% q-o-q), while FFB output was 2.1m tonnes in 1Q21 (+31% y-o-y, -8% q-o-q). We understand that its downstream business in 1Q21 was weaker q-o-q due partly to higher inventories.
- Also, Golden Agri-Resources indicated that the strong 4Q20 downstream division performance was due mainly to the change in the export levy structure in Dec and will be hard to match in subsequent quarters.
Raises FFB output guidance to up to 10% growth in FY21F
- The 31% y-o-y surge in FFB output from its nucleus estates in 1Q21 was higher than its +5% guidance. As a result, Golden Agri-Resources raised its FY21F FFB output guidance to 10% growth. Golden Agri-Resources said the strong output growth was due to improved yields and contribution from newly-acquired estates of 34k ha last year. It also highlighted that production costs fell in 1Q21 to US$285 per tonne due to higher production.
- Golden Agri-Resources expects the tightness in global edible oils to continue in the near term and revealed that there is an on-going discussion to potentially reduce Indonesian palm oil export levy.
- We lift our EPS forecasts to reflect higher FFB output and raise our target price for Golden Agri-Resources to S$0.25 as we reduce the discount to SOP to 20%, from 40% previously, to reflect the better CPO price. However, we downgrade our call to REDUCE from Hold as Golden Agri-Resources appears fairly valued, trading at an EV/ha of US$12.4k.
- We prefer First Resources (SGX:EB5) for the younger age profile of its estates.
- See
- De-rating catalysts are a sharp fall in CPO price and weaker downstream margin.
- Upside risks are higher CPO prices and lower Indonesia palm oil export levy/duty structure.
Ivy NG Lee Fang CFA
CGS-CIMB Research
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Nagulan RAVI
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-05-13
SGX Stock
Analyst Report
0.25
UP
0.199
