GOLDEN AGRI-RESOURCES LTD (SGX:E5H)
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
- Golden Agri-Resources maintained its FY21F FFB output guidance of 10% growth and projects a slower production growth rate in 2H21F due to a higher production base in 4Q20.
- Golden Agri-Resources also revealed that its 56.27%-owned subsidiary Gemini Edibles & Fats India (Gemini) has initiated the process for its proposed listing on the BSE and National Stock Exchange of India. Golden Agri-Resources plans to sell shares worth US$100m in Gemini during the IPO.
- Golden Agri-Resources also expects CPO prices to remain stable due to tightness in global edible oil supplies.
- See
- We lift our EPS forecasts to reflect higher CPO prices and downstream profit margins but maintain our target price of S$0.25, still based on a 20% discount to SOP. We upgrade our call for Golden Agri-Resources to Hold from Reduce as its EV/ha of US$11.6k is supportive of share price.
- Upside risks are better-than-expected results while downside risks are declining CPO prices and ESG concerns.
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
2021-08-16
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