Golden Agri-Resources - RHB Invest 2021-05-05: Turnaround Story


Golden Agri-Resources - Turnaround Story

  • Highly sensitive to CPO price movements
  • Beneficiary of the current tax and levy structure in Indonesia
  • Undervalued company trading below P/E of 5x vs peers’ 8-12x 2021F

Golden Agri-Resources - Company Profile

  • Golden Agri-Resources (SGX:E5H) is one of the largest oil palm plantation companies in the world, with operations across 11 countries. It is the biggest local player in the cooking oil market in Indonesia. Golden Agri-Resources produces more than 2.2m tonnes of CPO, with about 498,000ha of planted hectarage. It also has downstream capabilities, with 4.98m tonnes of refining capacity, 440,000 tonnes of oleochemical capacity, and 600,000 tonnes of biodiesel capacity.

Golden Agri-Resources - Investment Highlights

  • Highly sensitive to CPO price movements. Golden Agri-Resources is highly sensitive to CPO price movements, where every MYR100.00 per tonne will impact earnings by 8-10%.
  • Ability to channel its sales downstream enables Golden Agri-Resources to benefit from the current tax structure. Given the current punishing tax and levy structure in Indonesia, pure upstream players will not be able to benefit from the current high CPO prices. However, Golden Agri-Resources, having 4.98m tonnes of refining capacity, will be able to channel all sales into its downstream facilities, hence benefitting from the tax structure. Based on the current tax rates for March, the additional margins advantage for refined products is as high as US$125.00 per tonne.
  • For FY21F, Golden Agri-Resources is projecting 5% FFB growth, coming from a recovery of the post El Nino effect from 2019. We note that 4Q20 output jumped 25% q-o-q and 13% y-o-y, as Indonesia recorded a late peak harvest during this year.
  • Landbank rejuvenation on the way. Golden Agri-Resources replanted 18,400ha in 2020, in line with its target of 15-20,000ha per year. The aggressive replanting schedule is aimed at rejuvenating its age profile, which currently stands at 16 years.
  • Costs expected to remain flattish. The company booked unit costs of US$296.00 per tonne in FY20 (-2.6% y-o-y). For FY21F, unit costs are expected to remain close to US$300.00 per tonne, as output improves and fertiliser prices remain relatively flattish.
  • Downstream margins to improve. The downstream division is likely to be the star of the show for FY21. Golden Agri-Resources guided for margins to improve this year, as the levy advantage has widened. It is targeting a 5% EBITDA margin for 2021 from 3.6% in 2020.
  • New biodiesel capacity coming on stream in 2H21. On the biodiesel front, Golden Agri-Resources has received an allocation of 624,000 tonnes (flat y-o-y); margins have also widened on the adjustments made to selling prices in Dec 2020. It is expanding its biodiesel capacity by 450,000 tonnes (+75%), and this will come on stream in 2H21, enabling the company to benefit from any increase in Indonesia’s biodiesel mandate.
  • No fixed dividend policy, but rising yields. Although Golden Agri-Resources has no fixed dividend policy, it has historically paid a 20-80% payout. Assuming a 20% payout for the next few years, this should yield around 4-5%.

Golden Agri-Resources - Company Report Card

Latest results.

  • Golden Agri-Resources's FY20 earnings came in significantly above our and consensus’ forecasts, with a turn around to profitability stemming from a more than 200% h-o-h jump in downstream profit and more than 100% rise in upstream profit. 2H20 saw a significant profitability turnaround of US$155m (2H19: US$212m), resulting in an FY20 core profit of US$62m after posting losses for almost nine consecutive quarters.
  • We estimate EBITDA for the downstream division to have jumped close to six-fold q-o-q in 4Q20, resulting in FY20 EBITDA rising 10%(from -40% y-o-y in 9M20. This was despite a 7% drop in sales volumes, and was largely due to the pricing advantage caused by the Indonesian tax levy.

Balance sheet/cash flow.

  • As at end FY20, Golden Agri-Resources’s net gearing improved to 64.6% from 67.3% in FY19. We expect net gearing to continue dropping over the next few years, as earnings return to the black. Operating cash flow improved from US$280-380m in 2018-2019 to US$740m in 2020.
  • We expect operating cash flows to remain in the US$700-850m range over the next few years.


  • Golden Agri-Resources’s ROE has been negative over 2018-2019 due to losses incurred, but returned to positive territory in 2020. We expect ROE to continue improving from FY21 onwards, supported by a more sustainable earnings turnaround as CPO prices hold firm.


  • Golden Agri-Resources is helmed by Chairman and CEO Franky Oesman Widjaja. The Widjaja family are also its major shareholders, with a 50.5% stake in the company. Golden Agri-Resources is related to the Sinarmas group of companies and is the holding company for JSX-listed Smart.

Golden Agri-Resources - Investment Case

Golden Agri-Resources is a turnaround story, benefitting from the rise in CPO prices and the tax structure in Indonesia.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-05-05
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