Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, should benefit from the recent rebound in CPO (crude palm oil) prices to MYR2450/ton; we note that there is a strong historical correlation of nearly 0.78 between CPO prices and GAR share price. While the general outlook for commodities is still uncertain (as China’s economic growth continues to sputter along), we believe that headwinds appear to be dissipating. Furthermore, management remains fairly upbeat about its prospects as it continues to expand its integrated operation capabilities to benefit from the firm industry outlook. Maintain BUY with an unchanged S$0.63 fair value (based on 12.5x FY13F EPS).
Modest uptick in CPO prices
Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, should benefit from the recent rebound in CPO (crude palm oil) prices to MYR2450/ton; this from a recent low of MYR2200/ton, buoyed by expectations of a potential fall in the CPO stockpiles in both Malaysia and Indonesia due to the upcoming Muslim holiday.
Inventory already easing in 1Q13
Recall that GAR has already seen a sharp drop in its inventory in 1Q13, which fell by 122k tonnes to 398k tonnes by end-Mar. Management had also previously guided for the inventory overhang to clear by end 1H13 to around its usual holdings of about 320k tonnes. Management also noted that there appears to have been a substantial decline in inventories across the palm oil industry in Indonesia; it further believes that this will eventually be reflected in higher CPO prices down the road.
Strong correlation between CPO prices and GAR share price
And because of the strong historical correlation of nearly 0.78 between CPO prices and GAR share price, we believe that a continued recovery in CPO prices should also lead to a corresponding rise in GAR share price.
Maintain BUY with unchanged S$0.63 fair value
While the general outlook for commodities is still uncertain (as China’s economic growth continues to sputter along), we believe that headwinds appear to be dissipating. In 1Q13, its China operations had put in a much improved performance, turning in net profit of US$6m, compared to loss of US$23m in 4Q12, which GAR attributed to the result of a strengthening of the management team. Furthermore, management remains fairly upbeat about its prospects as it continues to expand its integrated operation capabilities to benefit from the firm industry outlook. Maintain BUY with an unchanged S$0.63 fair value (based on 12.5x FY13F EPS).
Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, should benefit from the recent rebound in CPO (crude palm oil) prices to MYR2450/ton; this from a recent low of MYR2200/ton, buoyed by expectations of a potential fall in the CPO stockpiles in both Malaysia and Indonesia due to the upcoming Muslim holiday.
Inventory already easing in 1Q13
Recall that GAR has already seen a sharp drop in its inventory in 1Q13, which fell by 122k tonnes to 398k tonnes by end-Mar. Management had also previously guided for the inventory overhang to clear by end 1H13 to around its usual holdings of about 320k tonnes. Management also noted that there appears to have been a substantial decline in inventories across the palm oil industry in Indonesia; it further believes that this will eventually be reflected in higher CPO prices down the road.
Strong correlation between CPO prices and GAR share price
And because of the strong historical correlation of nearly 0.78 between CPO prices and GAR share price, we believe that a continued recovery in CPO prices should also lead to a corresponding rise in GAR share price.
Maintain BUY with unchanged S$0.63 fair value
While the general outlook for commodities is still uncertain (as China’s economic growth continues to sputter along), we believe that headwinds appear to be dissipating. In 1Q13, its China operations had put in a much improved performance, turning in net profit of US$6m, compared to loss of US$23m in 4Q12, which GAR attributed to the result of a strengthening of the management team. Furthermore, management remains fairly upbeat about its prospects as it continues to expand its integrated operation capabilities to benefit from the firm industry outlook. Maintain BUY with an unchanged S$0.63 fair value (based on 12.5x FY13F EPS).
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