Tuesday, 4 March 2014

Golden Agri-Resources

OCBC on 3 Mar 2014

Golden Agri-Resources (GAR) put in a stronger-than-expected 4Q13 showing, such that FY13 revenue grew 9% to US$6585.0m; this was 5% higher than our forecast and 15% above consensus. FY13 reported net profit though fell 24% to US$311.3m, and core earnings was down 21% at US$318.4m, 17% above our forecast (12% above consensus). GAR declared a final dividend of 0.515 S cent/share, bringing the total to 1.1 S cents (versus 1.19 S cents in FY12). Going forward, management remains largely positive about its prospects, though it notes that competition in China remains intense. In view of the latest results and developments, we opt to increase our FY14 estimates by 2-3% higher. Note that we are also increasing our CPO forecast for 2014 from US$830/ton to US$835. Based on an unchanged 13.5x peg against our new FY14F EPS, our fair value improves slightly from S$0.50 to S$0.52. Maintain HOLD for now.

Better-than-expected FY13 results 
Golden Agri-Resources (GAR) put in a stronger-than-expected 4Q13 showing, with revenue rising 25% YoY and 21% QoQ to US$1901.8m, such that FY13 revenue grew 9% to US$6585.0m; this was 5% higher than our forecast and 15% above consensus. And because of better performance from China Operations and lower fertiliser cost, reported net profit jumped 129% YoY and 307% QoQ to US$123.0m in 4Q13; core net profit (excluding fair value gains and exceptional items) surged 212% YoY and 199% QoQ to US$113.5m. FY13 reported net profit though fell 24% to US$311.3m, and core earnings was down 21% at US$318.4m, 17% above our forecast (12% above consensus). GAR declared a final dividend of 0.515 S cent/share, bringing the total to 1.1 S cents (versus 1.19 S cents in FY12). 

Outlook remains largely positive
Going forward, management remains largely positive about its prospects, supported by robust demand for edible oils, substitute and alternative uses such as oleo-chemicals and biodiesel. Barring unforeseen weather conditions, GAR believes that CPO production should revert to the usual 5-10% growth. However, it notes that its China Agri-business' operating environment remains challenging in view of the intense competition. This year, GAR intends to spend US$250m for upstream activities, which include expanding palm oil plantations by 20-30k ha. For the downstream, it projects a capex of US$300m, with US$250m to increase processing capacity and US$50m to acquire vessels.

Revising FY14 estimates higher by 2-3%
In view of the latest results and developments, we opt to increase our FY14 estimates by 2-3%. Note that we are also increasing our CPO forecast for 2014 from US$830/ton to US$835. Based on an unchanged 13.5x peg against our new FY14F EPS, our fair value improves slightly from S$0.50 to S$0.52. Maintain HOLD for now.


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