CPO Stocks

OCBC on 26 Aug 2013

Most CPO (crude palm oil) companies reported fairly disappointing 1H13 results recently, no doubt hurt by weaker CPO prices in 2Q13 (CPO prices fell 25% YoY and another 5% QoQ). But going forward, the outlook for CPO prices remains largely muted, given the sluggish economy, as well as the expected rise in production of vegetable oils. While most of the plantation stocks have corrected quite a bit of late, making valuations less demanding, we note that there could still be earnings disappointments for upstream players should CPO prices fall further. We have a SELL on GAR and are reviewing our Hold rating on GPR. While we have a HOLD on WIL, its downstream business may be vulnerable to further economic contraction in China.

1H13 results largely disappointing 
Most CPO (crude palm oil) companies reported fairly disappointing 1H13 results recently, no doubt hurt by weaker CPO prices in 2Q13 (CPO prices fell 25% YoY and another 5% QoQ). Under our coverage, Golden Agri’s (GAR) 1H13 earnings only met about 34% of our full-year forecast. Global Palm Resources (GPR) was even harder hit, as its 1H net profit met just 27% of our full-year forecast. Wilmar International Limited (WIL) fared slightly better, with 1H13 core earnings meeting 40% of our FY13 forecast, as its substantial downstream business helped to mitigate the poorer upstream showing.

Outlook for CPO prices still quite muted 
But going forward, the outlook for CPO prices remains largely muted, given the sluggish economy in China (one of the biggest buyers of CPO and other vegetable oils), while even Indonesia’s economy could be facing increased headwinds due to reduced spending power on the back of a higher-than-expected spike in inflation and a sharp weakening in the IDR . On the supply side, things are not looking too good either – CPO production as well as the other vegetable oil substitutes are expected to increase in 2H13. Based on current estimates, market watchers like Oil World believe that “world production is likely to exceed demand”. The Hamburg-based industry researcher adds that there is little scope for more growth in demand for vegetable oils to make biodiesel, citing unchanged biodiesel mandates in the EU and “hesitatingly” implemented increases in Brazil and Argentina . 

Avoid upstream players for now 
Most of the plantation stocks have corrected quite a bit of late – on average, we estimate that these stocks are down about 17% YTD, versus the STI’s 3% slide, making valuations less demanding. But we note that there could still be earnings disappointments for upstream players should CPO prices fall further. We have a SELL on GAR and are reviewing our Hold rating on GPR. While we have a HOLD on WIL, its downstream business may be vulnerable to further economic contraction in China.

Global Palm Resources

OCBC on 21 May 2013

Global Palm Resources (GPR) posted 1Q13 revenue of IDR66.8b, down 33% YoY and 4% QoQ, while reported net profit tumbled 36% YoY to IDR8.3b, meeting 20% and 16% of our full-year revenue and net profit estimates, respectively. While GPR has maintained its new planting target of 300-400ha for this year, it has made a very slow start, planting just 5ha in 1Q13 (versus 166ha in 1Q12) – the lowest new planting since 1Q11. Meanwhile, the outlook also remains muted, given the still-sluggish CPO prices and an impending increase in labour cost (with the upward revision in Indonesia’s minimum wages this year). Until we see fresh progress in its land negotiation and/or acquisition of either new or existing plantations, we opt to keep our HOLD rating and S$0.17 fair value (based on 10x FY13F EPS).

Dismal start to FY13 as expected
Global Palm Resources (GPR) posted 1Q13 revenue of IDR66.8b, down 33% YoY and 4% QoQ, hit by softer CPO (crude palm oil) prices as well as lower volume sold. Reported net profit tumbled 36% YoY to IDR8.3b; GPR posted a net loss of IDR85.7b in 4Q12 due to a large bio-asset revaluation loss of IDR116.9b. That said, results were in line with our expectations, as revenue met 20% of our full-year forecast while earnings met 16%. 

Inventory fell 42% QoQ
Although volume sold fell 12% YoY to 11.1k tonnes, it was up nearly 3% QoQ; and together with a 28% seasonal fall in CPO production to 9.1k tonnes, this resulted in a 42% reduction in inventory to around 4.5k tonnes as at end-Mar. However, with GPR still expecting to see a pretty robust 11% growth in FFB production this year, any rebound in inventory could still remain a concern. 

Just planted 5ha in 1Q 
While GPR has maintained its new planting target of 300-400ha for this year, it has made a very slow start, planting just 5ha in 1Q13 (versus 166ha in 1Q12) – the lowest new planting since 1Q11. Previously, management blamed the slow new planting on the “increasingly more difficult” negotiation process with the local population. However, we understand that GPR is making “good progress” in terms of socialization with the local population and the next step for the company is to obtain a plantation business permit and start land compensation negotiations.

Maintain HOLD with S$0.17 fair value
In any case, the outlook also remains muted, given the still-sluggish CPO prices and an impending increase in labour cost (with the upward revision in Indonesia’s minimum wages this year). Until we see fresh progress in its land negotiation and/or acquisition of either new or existing plantations, we opt to keep our HOLD rating and S$0.17 fair value (based on 10x FY13F EPS).

Global Palm Resources

OCBC on 26 Mar 2013

Global Palm Resources (GPR) continues to see a rise in its inventory of CPO (crude palm oil), this time more than doubling to 7.7k tonnes from 3.4k tonnes at end 3Q12 (also up 19% YoY). And with the continued high production of CPO (which is likely to continue into Mar as company expects FFB production to increase some 11% this year), GPR may see its stock pile inching even higher going into 2Q13. Meanwhile, new planting has been slow – GPR only added 331k ha last year – and plans to plan 300-400ha this year, citing tough negotiations with the local population. Recent FY12 results were slightly disappointing – GPR reported a net loss of IDR39.8b; but if we strip out the bio-asset fair value losses, core earnings would have come in at IDR51.5b, or 10% below our forecast. In view of the still muted outlook for CPO, we cut our FY13 forecast for revenue by 13% and core earnings by 12%; this also brings our fair value down from S$0.19 to S$0.17, still based on 10x FY13F EPS. Maintain HOLD.

Rising inventory remains a concern
Global Palm Resources (GPR) continues to see a rise in its inventory of CPO (crude palm oil), this time more than doubling to 7.7k tonnes from 3.4k tonnes at end 3Q12 (also up 19% YoY). We believe that the recent volatility in CPO prices may have kept buyers on the sidelines, as some market watchers believe that CPO prices have not bottomed. And with the continued high production of CPO (which is likely to continue into Mar as company expects FFB production to increase some 11% this year), GPR may see its stock pile inching even higher going into 2Q13.

Planting bogged down by tough negotiations with villagers
As of end-2012, GPR only added 331k ha of new planting, coming in at the low end of its revised 300-400 ha guidance. According to management, the delay was due to the “increasingly more difficult” negotiation process with the local population. And with the process likely to remain so, GRP is again guiding for a new planting target of 300-400 ha. GPR still has about 2.6k ha available for future cultivation. Meanwhile, management continues to be on the look out for acquisitions in both existing plantations and for land. As of end-2012, GPR has around IDR263.4b of net cash. 

Maintain HOLD with S$0.17 fair value
Recent FY12 results were slightly disappointing – GPR reported a net loss of IDR39.8b; but if we strip out the bio-asset fair value losses, core earnings would have come in at IDR51.5b, or 10% below our forecast. In view of the still muted outlook for CPO, we cut our FY13 forecast for revenue by 13% and core earnings by 12%; this also brings our fair value down from S$0.19 to S$0.17, still based on 10x FY13F EPS. Maintain HOLD.

Global Palm Resources

OCBC on 23 Nov 2012

Global Palm Resources (GPR) has slashed its planting target by >60% to 300-400 ha for 2012 as it now faces increasing difficulties in its negotiation with the local population. Instead, management continues to be on the lookout for acquisitions to boost its plantation size; and believes that the process to be easier now with the drop in CPO (crude palm oil prices). Nevertheless, we note that rising inventory levels could remain an issue which could see stockpiles rising further in 4Q12 and even 1Q13 due to continued strong CPO production and muted demand. Unless there is a sharp recovery in CPO prices or a sizable brown-field acquisition, we do not see any catalyst in sight. Maintain HOLD with an unchanged fair value of S$0.19 even as we roll forward our 10x peg from blended FY12/FY13 to FY13F EPS.

Slashes new planting target by >60%
Global Palm Resources (GPR) has added just 33 ha of new plantings in 3Q12, bringing the YTD total to 292 ha. According to management, the delay was due to the “increasingly more difficult” negotiation process with the local population. As a result, GPR has slashed its new planting target for 2012 to about 300-400ha, or more than 60% versus its initial target of 1000 ha. Note that GPR also slashed its planting target last year from 1.6-1.7k to 1.0k ha. Currently, it has about 2.6k ha available for planting. GPR adds that it is still exploring various opportunities for acquisitions, and it expects the process to be easier now with the drop in CPO (crude palm oil) prices. GPR is currently sitting on about IDR247.5b of net cash (as of end Sep). 

Rising inventory levels another concern
Meanwhile, we note that GRP has ended with significantly higher ending inventory of CPO of 3.4k tonnes at end Sep, versus 1.1k tons at end Jun. Management attributed the large increase to market uncertainty over the past few months and also the high production of CPO since Aug; this resulting in a “wait –and-see” approach by buyers in a “downward trending market”. While GPR said that it has started to clear the excess inventory, the continued high production of CPO (which is likely to continue into Feb) could see its stock pile inching higher in 4Q12 and even 1Q13.

Still no catalyst in sight
9M12 revenue of IDR263.7b (down 1%) met 70% of our FY12 forecast, while net profit fell 5% to IDR48.5b, or 80% of our full-year forecast. As such, we will not be adjusting our estimates. Unless there is a sharp recovery in CPO prices or a sizable brown-field acquisition, we do not see any catalyst in sight. Maintain HOLD with an unchanged fair value of S$0.19 even as we roll forward our 10x peg from blended FY12/FY13 to FY13F EPS.

Global Palm Resources

OCBC on 22 Aug 2012

Global Palm Resources (GPR) has kept its 1k ha new planting target for 2012, although new plantings to date has been slow – only planted 259 ha in 1H12 versus 444 ha in 1H11. GPR eyes inorganic growth to help meet its target and has IDR240.6b (as of end Jun 2012) for M&A opportunities. On another note, cash cost has risen further in 2Q12 to IDR3697/kg, up further from IDR3277/kg in 1Q11; this mainly due to higher indirect material used (fertilizers), higher cost of upkeep and harvesting and increased cost of fuel. We will continue to monitor the situation and while we are bumping up our FY12 revenue forecast by 3.8%, our earnings estimate only rises by 3.6%. Our fair value also remains at S$0.19, mainly due to the depreciating IDR against SGD, even though we push out our 10x valuation to blended FY12/FY13F EPS. Maintain HOLD.

2Q12 results tad ahead of forecast
Global Palm Resources (GPR) reported 2Q12 revenue rising 23% YoY and 8% QoQ to IDR106.4b, lifted by both higher sales volumes and ASP of CPO. As a result, gross margin improved to 35.8% in 2Q12 from 34.8% in 2Q11 and 25.7% in 1Q12. Net profit grew 3% YoY and 57% QoQ to IDR20.3b. For 1H12, revenue was up 17% at IDR205.3b, meeting 57% of our FY12 forecast; although net profit slipped 4% to IDR33.2b, it still met 60% of our full-year estimate.

Planted only 93 ha in 2Q12
On the plantation side, GPR only added 93 ha of new plantings, compared to 166 ha in 1Q12. In total, GPR planted 259 ha in 1H12 versus 444 ha in 1H11, but continues to maintain its new planting target at 1k ha for this year. GRP has 2.6k ha of uncultivated land bank that it can convert into oil palm plantations. It has also obtained land location permit for 7.2k ha in East Kalimantan. Capex remains unchanged at IDR15.6b for plantation expenditure and another IDR35.6b on infrastructure spending. Meanwhile, management reveals that it is still on the lookout for M&A opportunities – GPR has net cash balance of IDR240.6b (as of end Jun 2012) which it can tap on.

Maintain HOLD – eyes on rising cost
On another note, cash cost has risen further in 2Q12 to IDR3697/kg, up further from IDR3277/kg in 1Q11; this mainly due to higher indirect material used (fertilizers), higher cost of upkeep and harvesting and increased cost of fuel. We will continue to monitor the situation and while we are bumping up our FY12 revenue forecast by 3.8%, our earnings estimate only rises by 3.6%. Our fair value also remains at S$0.19, mainly due to the depreciating IDR against SGD, even though we push out our 10x valuation to blended FY12/FY13F EPS. Maintain HOLD.

Global Palm Resources

OCBC on 7 June 2012

We have recently spoken with management of Global Palm Resources (GPR) to get an update after releasing its 1Q12 results which were mostly in line with our expectations. The group has kept its new planting target for 2012 at 1k ha; and it has planted some 166 ha in 1Q12. According to management, it still has around 2.7k ha available for future cultivation. It intends to spend IDR15.6b on plantation expenditure this year and another IDR35.9b on other capex – unchanged from its earlier guidance made after its 4Q11 results. While we are maintaining our HOLD rating with an unchanged fair value of S$0.19 (10x FY12F EPS), key risks include bigger-than-expected fallout from Europe and sharper-than-expected fall in crude oil prices.

1Q12 mostly in line
We have recently spoken with management of Global Palm Resources (GPR) to get an update after releasing its 1Q12 results which were mostly in line with our expectations. As a recap, revenue grew 12.0% YoY and 24.8% QoQ to IDR98.918b, meeting 27.3% of our full-year forecast. Net profit though fell 13.1% YoY and 76.8% QoQ (which also includes biological asset gains) to IDR12.9b, or around 23.4% of our FY12 forecast. However, we note that gross margin eased from 30.5% in 1Q11 and 31.3% in 4Q11 to 25.7%; this probably due to lower ASPs.

Watching cost pressures
In addition, cash cost has also risen in 1Q12 to IDR3277/kg, up from the average of IDR2489/kg in FY11; this mainly due to higher indirect material used (fertilizers), higher cost of upkeep and harvesting and increased cost of fuel. We note that it was also higher than management’s earlier forecast of IDR3087/kg for FY12. As such, we will continue to monitor the situation and make any adjustments in our margin assumptions later.

No change to 1k ha planting target
The group has kept its new planting target for 2012 at 1k ha; and it has planted some 166 ha in 1Q12. Currently, GPR’s plantation size is around 10.5k ha, with 58.6% at the peak production stage (7-18 years). According to management, it still has around 2.7k ha available for future cultivation. It intends to spend IDR15.6b on plantation expenditure this year and another IDR35.9b on other capex – unchanged from its earlier guidance made after its 4Q11 results. Meanwhile, GPR is sitting on a net cash hoard of IDR225b (as of 31 Mar), which is intends to use for M&As.

Maintain HOLD with S$0.19 fair value
While we are maintaining our HOLD rating with an unchanged fair value of S$0.19 (10x FY12F EPS), key risks include bigger-than-expected fallout from Europe and sharper-than-expected fall in crude oil prices.

Global Palm Resources

OCBC on 23 Mar 2012


We spoke recently with management of Global Palm Resources (GPR) to get an update after ending FY11 on a pretty weak note. Going forward, GPR expects to increase new plantings to 1.0k ha, after planting 951 ha in FY11. It adds that it is on the lookout for M&A opportunities, where it has an ample net cash balance of IDR215.8b as of end FY11. But higher cost of production could crimp margins, even though CPO prices have generally remained fairly resilient thus far this year. As such, we have adjusted our margin assumptions accordingly, lowering our FY12 revenue estimate by 3.8% and earnings by 9.9%. In line with the revision, our fair value eases from S$0.195 to S$0.19, still based on 10x FY12F EPS. But as the stock is currently trading at just 0.7x its FY11 NTA, we believe that further downside is likely limited. As such, we maintain our HOLD rating.

Uninspired FY11 finish
We spoke recently with management of Global Palm Resources (GPR) to get an update after ending FY11 on a pretty weak note. As a recap, FY11 revenue of IDR345.6b was 2.6% below our estimate, while core net profit of IDR57.8b was 5.5% below. GPR has declared a final dividend of S$0.002/share, versus S$0.0016 in FY10. 

Revised planting target for FY12
The group also added just 951 ha of planting in FY11, or about 5% shy of its revised 1.0k ha target (previously 1.6-1.7k) for this year. Nevertheless, management has just bumped up its new planting target from 770 ha to 1.0k ha. All in, it expects to spend some IDR15.6b on plantation capex this year, down from IDR21.6b last year. In addition, the company has targeted IDR35.9b capex for infrastructure, up from IDR18.9b in FY11. Meanwhile, management reveals that it is still on the lookout for M&A opportunities – GPR has a net cash balance of IDR215.8b (as of end Dec 2011) which it can tap on. 

Also expecting higher cost pressures
While CPO prices have generally remained fairly resilient, management is expecting higher cost of production this year, with cash cost likely to rise to IDR3087/kg, from IDR2585/kg in 4Q11 and IDR2489/kg in FY11. GPR explained that it is due to the higher budgeted fertilizer cost for FY12 of IDR28.0b (including compost), versus IDR14.9b in FY11; this as the new plantings would need more fertilizers in the infancy stage. As such, we have adjusted our margin assumptions accordingly, lowering our FY12 revenue estimate by 3.8% and earnings by 9.9%.

Trading at 0.7x NTA
In line with the revision, our fair value eases from S$0.195 to S$0.19, still based on 10x FY12F EPS. But as the stock is currently trading at just 0.7x its FY11 NTA, we believe that further downside is likely limited. As such, we maintain our HOLD rating.