Golden Agri-Resources

OCBC on 14 May 2012

Golden Agri-Resources (GAR) reported its 1Q12 results last Friday, with revenue rising 3.8% YoY and 14.4% QoQ to US$1519.1m, while net profit fell 30% YoY to US$162.0m (but made a 113% QoQ recovery). But it was a strong 113% QoQ recovery. All in, with revenue meeting 26.8% and earnings 28.1% of our full-year forecasts, Going forward, GAR believes that the industry outlook remains resilient with robust demand growth for palm oil coming from both emerging and develops countries; prices are also likely to be supported by limited supply growth of other vegetable oils, especially soybean. With numbers coming in mostly in line with our expectations, we are keeping our FY12 and FY13 forecasts unchanged. Still based on 12.5x FY12F EPS, our fair value also remains unchanged at S$0.77. But we upgrade our rating from Hold to BUY as the stock price has corrected quite a bit since our previous downgrade which we believe should have captured quite a bit of the negatives.

Decent start to 2012
Golden Agri-Resources (GAR) reported its 1Q12 results last Friday, with revenue rising 3.8% YoY and 14.4% QoQ to US$1519.1m, buoyed by still-firm CPO prices; GAR achieved ASP of US$1009/ton versus US$1150 in 1Q11 and US$965 in 4Q11. However, due to higher fertiliser application and labor cost, net profit fell 30% YoY to US$162.0m. But it was a strong 113% QoQ recovery. All in, with revenue meeting 26.8% and earnings 28.1% of our full-year forecasts, GAR has made a decent start to 2012. We understand that GAR has also largely cleared the bulk of unsold inventory from 4Q11 although it has started to build inventory ahead of the Hari Raya festivities.

Maintains mildly positive outlook
Going forward, GAR believes that the industry outlook remains resilient with robust demand growth for palm oil coming from both emerging and developed countries; prices are also likely to be supported by limited supply growth of other vegetable oils, especially soybean. GAR intends to focus on expanding both its upstream and downstream capabilities. Out of the projected US$500m capex, US$200m going to expand its palm oil plantation by 20-30k ha (both greenfield and via M&As). Another US$200m will be used to increase its downstream processing capacity in strategic locations, while the remaining US$100m will be used for infrastructure to extend its distribution coverage and logistic facilities to enhance its integrated operations.

Upgrade to BUY with unchanged S$0.77 fair value
With numbers coming in mostly in line with our expectations, we are keeping our FY12 and FY13 forecasts unchanged. Still based on 12.5x FY12F EPS, our fair value also remains unchanged at S$0.77. But we upgrade our rating from Hold to BUY as the stock price has corrected quite a bit since our previous downgrade which we believe should have captured quite a bit of the negatives.