Golden Agri-Resources (GAR) saw 2Q13 revenue jumped 25.4% YoY and 17.6% QoQ to US$1682.3m, but weaker margins on the back of softer CPO prices led to core earnings tumbling 52.3% YoY and 50.0% QoQ to an estimated US$55.1m. 1H13 revenue grew 8.8% to US$3112.4m, meeting 49.7% of our FY13 forecast, while net profit tumbled 41.5% to US$158.1m; core earnings slipped 40.9% to US$165.2m, or just 33.7% of our full-year forecast. In view of the worse-than-expected showing and likely more margin compression ahead, we opt to slash our FY13 core earnings forecast by 19%; this in turn drops our fair value from S$0.57 to S$0.465, now based on 11x blended FY13/FY14F EPS. We also downgrade our call from Hold to SELL.
Poor 2Q13 showing
Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, understandably felt the impact of weaker CPO prices. Although 2Q13 revenue climbed 25.4% YoY and 17.6% QoQ to US$1682.3m, gross profit tumbled 23.7% YoY and 15.0% QoQ to US$303.6m, yielding a margin of just 18% (versus 30% in 2Q12 and 25% in 1Q13), weighed by lower ASPs (down 25% YoY, +0.6% QoQ) and higher production costs. Affected by higher forex losses of US$14.0m, reported net profit tumbled 58.1% YoY and 59.9% QoQ to US$45.3m. We estimate that core earnings would have come in around US$55.1m, still down 52.3% YoY and 50.0% QoQ. While 1H13 revenue grew 8.8% to US$3112.4m, meeting 49.7% of our FY13 forecast, net profit tumbled 41.5% to US$158.1m; core earnings slipped 40.9% to US$165.2m, or just 33.7% of our full-year forecast.
Near-term headwinds likely to remain
Nevertheless, management continues to remain upbeat about the long-term prospects of the palm oil industry, and will continue to increase its production of sustainable palm oil, improve operating efficiency and also optimise its downstream value chain opportunities. However, we expect the near-term outlook to remain challenging, given the muted outlook for CPO prices in general as global demand (especially out of China and India) remains weak. In addition, market watchers expect to see further softening in CPO prices on supply concerns, given that production of CPO tends to improve in the second half of the year; they are also expecting an increase in supply from substitutes like soy and corn.
Downgrade to SELL
While we are keeping our FY13 revenue forecast unchanged, we are slashing our core earnings figure by 19% to account of increased margin pressures. Our fair value also drops from S$0.57 to S$0.465, based on 11x blended FY13/FY14F EPS. Downgrade to SELL from Hold.
Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, understandably felt the impact of weaker CPO prices. Although 2Q13 revenue climbed 25.4% YoY and 17.6% QoQ to US$1682.3m, gross profit tumbled 23.7% YoY and 15.0% QoQ to US$303.6m, yielding a margin of just 18% (versus 30% in 2Q12 and 25% in 1Q13), weighed by lower ASPs (down 25% YoY, +0.6% QoQ) and higher production costs. Affected by higher forex losses of US$14.0m, reported net profit tumbled 58.1% YoY and 59.9% QoQ to US$45.3m. We estimate that core earnings would have come in around US$55.1m, still down 52.3% YoY and 50.0% QoQ. While 1H13 revenue grew 8.8% to US$3112.4m, meeting 49.7% of our FY13 forecast, net profit tumbled 41.5% to US$158.1m; core earnings slipped 40.9% to US$165.2m, or just 33.7% of our full-year forecast.
Near-term headwinds likely to remain
Nevertheless, management continues to remain upbeat about the long-term prospects of the palm oil industry, and will continue to increase its production of sustainable palm oil, improve operating efficiency and also optimise its downstream value chain opportunities. However, we expect the near-term outlook to remain challenging, given the muted outlook for CPO prices in general as global demand (especially out of China and India) remains weak. In addition, market watchers expect to see further softening in CPO prices on supply concerns, given that production of CPO tends to improve in the second half of the year; they are also expecting an increase in supply from substitutes like soy and corn.
Downgrade to SELL
While we are keeping our FY13 revenue forecast unchanged, we are slashing our core earnings figure by 19% to account of increased margin pressures. Our fair value also drops from S$0.57 to S$0.465, based on 11x blended FY13/FY14F EPS. Downgrade to SELL from Hold.
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