Phillip Securities Research, May 14
GOLDEN Agri's Q1 2013 core net profit of US$108 million (-33 per cent y-o-y, +195 per cent q-o-q) was 24 per cent/23 per cent of our/consensus full-year forecast.
The stronger q-o-q result was attributed to turnaround of China operations, drawdown of inventory and lower operating cost, despite the seasonally lower production.
Revenue for its Indonesian agribusiness fell 6 per cent y-o-y due to the 20 per cent y-o-y drop in selling prices achieved for CPO (crude palm oil), which was partially offset by higher CPO production (+8 per cent y-o-y) and sales of carry-over stocks were down 193,000 tonnes from end-December 2012 (520,000 tonnes). Furthermore, rising costs of production for palm products (+11 per cent y-o-y) reduced margins, resulting in a 17 per cent y-o-y drop in Ebitda posted by its Indonesian agribusiness. On the other hand, the China agribusiness showed performance improvement after three quarters of consecutive losses. Y-o-y, Ebitda from China still declined 14 per cent to US$9 million. The higher overall Ebitda resulted in a 36 per cent q-o-q increase in pretax profit. Q1 effective tax rate of 29 per cent was above our forecast of 25 per cent.
Although we are mildly positive on the turnaround of its China agribusiness as well as the ramping up of its downstream business, we see higher cost of production and effective tax rate affecting earnings in the coming quarters. We maintain our earnings estimates and "neutral" rating. Our fair value of S$0.55 is still based on blended PE (12.0x FY13 estimate) and DCF (discounted cash flow) valuations. Key risks to our target price include CPO production/prices stronger/weaker-than-expected.
NEUTRAL
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