Golden Agri-Resources (GAR) reported 2Q15 revenue slipping 10.2% YoY to US$1831.1m; but it rebounded 17.9% QoQ as CPO production improved; net profit came in at US$38.8m, +42.2% YoY and +125.5% QoQ. As such, 1H15 revenue, though down 14.4% at US$3384.4m, it met 50% of our FY15 forecast; net profit tumbled 57.3% to US$55.9m, but still met 46% of our full-year estimate. While we are leaving our estimates unchanged for now, we are lowering our valuation peg from 13.5x to 12.5x to reflect the lower market PER; and this in turn lowers our fair value from S$0.35 to S$0.325. We are also upgrading our call from Sell to HOLD as most of the negative news should have been captured in the correction from S$0.45 to S$0.295.
2H15 outlook continue to remain challenging
But going forward, management expects the overall environment to remain challenging, even though 2H tends to be the slightly better half, given the volatility in CPO prices, climatic conditions and fluctuating exchange rates. Still, management intends to focus on enhancing its integrated operation capabilities to capture profit opportunities across the value chain. For 2015, it intends to spend US$130m of capex on upstream for replanting purposes; and US$170m on downstream to extend product portfolio, distribution coverage and global market reach.
More clarity on bio-asset accounting treatment
Separately, GAR gave more clarity on the new accounting treatment for biological assets that will be effective on 1 Jan 2016. GAR said it will opt for valuing bearer plants back to historical cost and be included as fixed assets to be depreciated over their useful life (15 years in this case). Based on the pro-forma impact, FY14 plantation assets would be adjusted down from US$7902m to US$1138m; equity down from US$8729m to US$3706m; core net profit will dip from US$221m to US$144 (mainly due to higher depreciation). However, do note that the impact is non-cash in nature; and would also bring book value back to a more reasonable level.
Upgrade to HOLD with S$0.325 fair value
While we are leaving our estimates unchanged for now, we are lowering our valuation peg from 13.5x to 12.5x to reflect the lower market PER; and this in turn lowers our fair value from S$0.35 to S$0.325. We are also upgrading our call from Sell to HOLD as most of the negative news should have been captured in the correction from S$0.45 to S$0.295.
But going forward, management expects the overall environment to remain challenging, even though 2H tends to be the slightly better half, given the volatility in CPO prices, climatic conditions and fluctuating exchange rates. Still, management intends to focus on enhancing its integrated operation capabilities to capture profit opportunities across the value chain. For 2015, it intends to spend US$130m of capex on upstream for replanting purposes; and US$170m on downstream to extend product portfolio, distribution coverage and global market reach.
More clarity on bio-asset accounting treatment
Separately, GAR gave more clarity on the new accounting treatment for biological assets that will be effective on 1 Jan 2016. GAR said it will opt for valuing bearer plants back to historical cost and be included as fixed assets to be depreciated over their useful life (15 years in this case). Based on the pro-forma impact, FY14 plantation assets would be adjusted down from US$7902m to US$1138m; equity down from US$8729m to US$3706m; core net profit will dip from US$221m to US$144 (mainly due to higher depreciation). However, do note that the impact is non-cash in nature; and would also bring book value back to a more reasonable level.
Upgrade to HOLD with S$0.325 fair value
While we are leaving our estimates unchanged for now, we are lowering our valuation peg from 13.5x to 12.5x to reflect the lower market PER; and this in turn lowers our fair value from S$0.35 to S$0.325. We are also upgrading our call from Sell to HOLD as most of the negative news should have been captured in the correction from S$0.45 to S$0.295.
No comments:
Post a Comment