Golden Agri-Resources (GAR), as the second largest palm oil plantation owner in the world, has undoubtedly been hit by falling CPO prices, which recently tumbled following weaker-than-expected demand from China and the apparent lack of substitution effect for the higher-priced soybean oil. For Oct alone, GAR’s share price fell by as much as 4.5%, bringing its YTD decline to 13.1%. Despite the sharp pullback in CPO prices, we believe that GAR should still be able to achieve our US$925/ton target; hence we are keeping our FY12 forecasts unchanged. But we are cutting our CPO target for 2013 to US$750/ton, which in turn pares our revenue and earnings forecasts by 6.7%. While we are maintaining our 12.5x blended FY12/13F EPS peg, our fair value eases from S$0.81 to S$0.76. But we maintain our BUY rating as we believe that the company’s longer-term fundamentals remain sound.
CPO prices falling faster than expected
Crude palm oil (CPO) prices have been falling a lot faster than what the market had expected, hit by weaker-than-expected demand from China (leading to rising stockpiles in both Malaysia and Indonesia) as well as the apparent lack of substitution effect for the higher-priced soybean oil. CPO futures are currently trading at around MYR2255/ton, or US$740/ton, versus some earlier forecasts by industry experts to hold around MYR2900-3300/ton. These industry experts now expect CPO prices to slip to around MYR2200/ton in 4Q.
Hit by falling CPO prices
Golden Agri-Resources (GAR), as the second largest palm oil plantation owner in the world, has undoubtedly been hit by falling CPO prices. For Oct alone, GAR’s share price fell by as much as 4.5%, bringing its YTD decline to 13.1%. And should CPO prices remain around current levels for the rest of 4Q12, we can also expect downward revisions from the street for its FY12 estimates and could see a larger impact on FY13 forecasts.
Impact mainly on FY13
Based on our estimates, CPO prices for 9M12 averaged around MYR3131/ton, or US$1027, but should CPO prices remain weak for the rest of 4Q12, we estimate that it could average around US$880 for the year. However, we believe that GAR should still be able to achieve US$925/ton price assumption for this year, as long as CPO prices do not fall to US$600 in 4Q12. However, for FY13, we are paring our CPO price assumption to US$750/ton (versus US$950 previously), which in turn will cut our revenue and earnings forecasts by 6.7% each.
Longer-term fundamentals remain sound
Even though our fair value drops from S$0.81 to S$0.76 (still based on 12.5x blended FY12/13F EPS), we believe that the longer-term fundamentals of the company remain sound. Hence we maintain our BUY rating; and anywhere below S$0.60 would be a good entry point.
Crude palm oil (CPO) prices have been falling a lot faster than what the market had expected, hit by weaker-than-expected demand from China (leading to rising stockpiles in both Malaysia and Indonesia) as well as the apparent lack of substitution effect for the higher-priced soybean oil. CPO futures are currently trading at around MYR2255/ton, or US$740/ton, versus some earlier forecasts by industry experts to hold around MYR2900-3300/ton. These industry experts now expect CPO prices to slip to around MYR2200/ton in 4Q.
Hit by falling CPO prices
Golden Agri-Resources (GAR), as the second largest palm oil plantation owner in the world, has undoubtedly been hit by falling CPO prices. For Oct alone, GAR’s share price fell by as much as 4.5%, bringing its YTD decline to 13.1%. And should CPO prices remain around current levels for the rest of 4Q12, we can also expect downward revisions from the street for its FY12 estimates and could see a larger impact on FY13 forecasts.
Impact mainly on FY13
Based on our estimates, CPO prices for 9M12 averaged around MYR3131/ton, or US$1027, but should CPO prices remain weak for the rest of 4Q12, we estimate that it could average around US$880 for the year. However, we believe that GAR should still be able to achieve US$925/ton price assumption for this year, as long as CPO prices do not fall to US$600 in 4Q12. However, for FY13, we are paring our CPO price assumption to US$750/ton (versus US$950 previously), which in turn will cut our revenue and earnings forecasts by 6.7% each.
Longer-term fundamentals remain sound
Even though our fair value drops from S$0.81 to S$0.76 (still based on 12.5x blended FY12/13F EPS), we believe that the longer-term fundamentals of the company remain sound. Hence we maintain our BUY rating; and anywhere below S$0.60 would be a good entry point.
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