Golden Agri-Resources - CGS-CIMB Research 2021-08-16: Higher Price & Output Boost 1H Earnings


Golden Agri-Resources - Higher Price & Output Boost 1H Earnings

  • Golden Agri-Resources’s 1H21 core net profit was above our expectations due to better-than-expected CPO price achieved as well as high downstream margins.
  • 1H21 earnings benefitted from increased FFB output and CPO selling prices. Also, the downstream division gained from the rising CPO price trend.
  • We upgrade Golden Agri-Resources to HOLD from Reduce as we expect its share price to be supported by the firm CPO prices and proposed listing of Gemini.

Golden Agri-Resources's 1H21 results above our forecast due to higher output and ASP

  • Golden Agri-Resources (SGX:E5H) reported a 1H21 core net profit (excluding deferred tax expense of US$27m, forex loss of US$8m and net gain of biological assets of US$2m) of US$172m, which is ahead of our full-year forecast of US$190m but in line with Bloomberg consensus forecast of US$298m. This is a significant turnaround from a loss of US$93m in 1H20.
  • We attribute the stronger results to stronger production, CPO price and downstream margin.
  • We expect the current firm CPO price to support 2H upstream earnings, though this will be partially dragged by weaker downstream profit.
  • An interim dividend of S$0.00538 was declared by Golden Agri-Resources, higher than 2020’s S$0.0048 per share.

Plantation division was the key earnings driver in 1H21

  • Golden Agri-Resources posted a 311% y-o-y improvement in EBITDA to US$479m in 1H21, driven mainly by higher net CPO prices (+29.2% y-o-y to US$722/tonne) and production.
  • The key surprise in 1H21 was stronger-than-expected FFB output, due partly to the acquisition of new estates and improved yields from its estates that were hit by drought last year. FFB output was 5.2m tonnes in 1H21 (+26% y-o-y). Excluding its newly acquired estates of 34k ha, Golden Agri-Resources’s FFB output grew 24% y-o-y in 1H21. The higher output resulted in a 29% y-o-y decline in its costs of production for CPO to US$219 per tonne.
  • Its downstream business also did well, with EBITDA growing by 171% y-o-y in 1H21 despite lower sales volumes (-4% y-o-y). We gathered that this was due to the rising CPO price as well as favourable export levy structure. Golden Agri-Resources explained that the lower sales volumes were due to timing of delivery, resulting in higher inventory at the end of June 2021.

Upgrade to HOLD with a unchanged target price of S$0.25

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-16
SGX Stock Analyst Report HOLD UPGRADE REDUCE 0.250 SAME 0.250