NRA Capital Pte Ltd

Written by: NRA Team

Monday 5 Aug 2013

Golden Agri-Resources - 2Q13 results review

Very challenging

Golden Agri-Resources (GAR) 1H13 net profit dropped by 41% yoy of US$158m mainly due to the decrease in average CPO FOB prices by 25% to US$795 per tonne, from US$1,058 per tonne in 1H12. However, revenue increased by 9% yoy to US$3.1m mainly driven by the expansion of refinery capacity.

Golden Agri-Resources (GAR) 1H13 net profit dropped by 41% yoy of US$158m mainly due to the decrease in average CPO FOB prices by 25% to US$795 per tonne, from US$1,058 per tonne in 1H12. However, revenue increased by 9% yoy to US$3.1m mainly driven by the expansion of refinery capacity.

Key notes takeaway from results briefing:

  • China operation performance improved as results of management team strengthening and more favourable business environment.
  • Expect full year revenue to growth 5-10% yoy due from last year M&A acquisition.
  • Average age plantations including plasma is about 14 years.
  • Haze Issue: Commitment to zero burning policy.
  • Projected capex approximately US$550m. US$300m for upstream, US$150m for downstream and US$100m use on two vessels
  • Jul production has showed sign of going up
  • Going forward, the group will focus on integrating its product facilities with its distribution network (including acquire 2 more vessels)
  • Refining annual capacity: 776,000MT; Crushing annual capacity: 2.3 million MT and Noodle Manufacturing capacity: 5 bn packets

Valuation:

In our view, palm oil plantation will remain challenging in the near-term as palm oil prices have fallen off since last year, but its production costs (including fertiliser and labour costs) continue to rise. We believe if palm oil prices continue to be weak, the pressure on profit margins is likely to drive some consolidation in the palm oil industry in the medium-term. Management also believes it could be a good time to acquire some plantation now.

GAR is currently trading at 13x historical P/E, consensus 12.4x P/E in FY13 and 11x for FY14. Despite the P/E valuation that is not high, we expect the palm oil sector to see further de-rating in the future by market analysts, reflecting negative earnings growth for the next two years.

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Golden Agri-Resources - 2Q13 results review
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5 August 2013


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