Golden Agri-Resources

OCBC on 13 Aug 2012

Golden Agri-Resources (GAR) reported its 2Q12 results last Friday, with revenue falling 16.2% YoY and 11.7% QoQ to US$1341.5m, while net profit fell 39.9% YoY and 33.3% QoQ to US$108.1m. But results were still in-line, given that 1H12 revenue met 52% of our full-year forecast, while net profit met 50% of our FY12 estimate. Going forward, GAR believes that the industry outlook remains resilient with robust demand growth for palm oil coming from both emerging and developed countries; it expects to spend US$500m as capex to expand both upstream and downstream operations. As we believe that our conservative assumptions have captured most of the downside risk, we maintain our BUY rating and S$0.81 fair value.

2Q12 results still in-line
Golden Agri-Resources (GAR) reported its 2Q12 results last Friday, with revenue falling 16.2% YoY and 11.7% QoQ to US$1341.5m, weighed by both lower CPO prices (YoY and QoQ) and lower sales volume (QoQ) due to delayed delivery of CPO. According to management, the delay had an EBITDA impact of ~US$50m; otherwise, EBITDA would have been flat YoY and QoQ. Net profit subsequently fell 39.9% YoY and 33.3% QoQ to US$108.1m. For 1H12, revenue slipped 6.6% to US$2860.7m, meeting 52% of our full-year forecast, while net profit dropped 34.2% to US$270.1m, or 50% of our FY12 estimate.

Maintains US$500m capex guidance
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$250m would be used to expand its palm oil plantation by 20-30k ha (20k likely organic, 10k via acquisition). Another US$200m would go to increasing its downstream processing capacity in strategic locations, while the remaining US$50m for infrastructure to extend its distribution coverage and logistic facilities to enhance its integrated operations.

Maintain BUY – downside risk captured
As the interim results were in-line with our forecast, we opt to leave our numbers unchanged. As before, we note that our assumptions (CPO forecast remains at US$925/ton for this year) are already quite conservative and should have captured most of the downside risk. We further feel that a recovery of CPO prices is likely, given that CPO and soybean prices have a strong correlation of 0.85, suggesting CPO prices will likely mirror an increase in soybean prices quite closely. Hence we maintain our BUY rating and S$0.81 fair value (based on 12.5x blended FY12/13F EPS).