Golden Agri-Resources (GAR) is likely to end off 2011 on a pretty strong note, aided by a fairly resilient CPO (crude palm oil) prices. With CPO prices remaining relatively stable at an average of US$959/MT in 4Q11 versus US$964/MT in 3Q11, GAR should put in a pretty strong last quarter. On the outlook for CPO prices, we are still pricing in a gradual slide to US$950/MT this year, down slightly from an average of US$1030 in 2011, in view of a potential slowdown in the global economy, particularly in China. On the other hand, drier-than-expected weather in South America could affect soy bean crop yields and could continue to support CPO prices, at least in the near term. Leaving our estimates unchanged for now; but due to a higher USD assumption for 2012, our fair value inches up from S$0.80 to S$0.82, still based on 12.5x FY12F EPS. Maintain BUY.
Likely strong finish to 2011
Golden Agri-Resources (GAR) is likely to end off 2011 on a pretty strong note, aided by a fairly resilient CPO (crude palm oil) prices. As a recap, GAR posted a 100% increase in its 9M11 revenue to US$4625m, while net profit jumped 105% to US$520m; this following a 41% jump in CPO FOB price to US$1117/MT. With CPO prices remaining relatively stable at an average of US$959/MT in 4Q11 versus US$964/MT in 3Q11, GAR should put in a pretty strong last quarter. We understand that GAR would also be expecting deferred revenue recognition for some 34k MT of CPO from a delayed delivery during 3Q11.
CPO prices could remain relatively firm
On the outlook for CPO prices, we are still pricing in a gradual slide to US$950/MT this year, down slightly from an average of US$1030 in 2011, in view of a potential slowdown in the global economy, particularly in China. We also note that CPO production is still expected to increase this year, with GAR still looking to achieve an increase of 5% this year after an expected increase of >10% in 2011. On the other hand, drier-than-expected weather in South America could affect soy bean crop yields and could continue to support CPO prices, at least in the near term (Refer to Exhibit 1).
BUY with higher S$0.82 fair value
And on the increased uncertainty over the global economy, we believe that GAR, aided by its experienced management team, is in good shape to weather any storm. Its cash cost of production has never exceeded US$300/ton – and this should afford the group a sizeable margin to cushion any pull-back in CPO prices. We note that even during the last financial crisis, CPO prices did not fall below US$500/ton. Leaving our estimates unchanged for now; but due to a higher USD assumption for 2012, our fair value inches up from S$0.80 to S$0.82, still based on 12.5x FY12F EPS. Maintain BUY.
Golden Agri-Resources (GAR) is likely to end off 2011 on a pretty strong note, aided by a fairly resilient CPO (crude palm oil) prices. As a recap, GAR posted a 100% increase in its 9M11 revenue to US$4625m, while net profit jumped 105% to US$520m; this following a 41% jump in CPO FOB price to US$1117/MT. With CPO prices remaining relatively stable at an average of US$959/MT in 4Q11 versus US$964/MT in 3Q11, GAR should put in a pretty strong last quarter. We understand that GAR would also be expecting deferred revenue recognition for some 34k MT of CPO from a delayed delivery during 3Q11.
CPO prices could remain relatively firm
On the outlook for CPO prices, we are still pricing in a gradual slide to US$950/MT this year, down slightly from an average of US$1030 in 2011, in view of a potential slowdown in the global economy, particularly in China. We also note that CPO production is still expected to increase this year, with GAR still looking to achieve an increase of 5% this year after an expected increase of >10% in 2011. On the other hand, drier-than-expected weather in South America could affect soy bean crop yields and could continue to support CPO prices, at least in the near term (Refer to Exhibit 1).
BUY with higher S$0.82 fair value
And on the increased uncertainty over the global economy, we believe that GAR, aided by its experienced management team, is in good shape to weather any storm. Its cash cost of production has never exceeded US$300/ton – and this should afford the group a sizeable margin to cushion any pull-back in CPO prices. We note that even during the last financial crisis, CPO prices did not fall below US$500/ton. Leaving our estimates unchanged for now; but due to a higher USD assumption for 2012, our fair value inches up from S$0.80 to S$0.82, still based on 12.5x FY12F EPS. Maintain BUY.
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