Wednesday, July 31, 2013

Golden Agri : A price for everything (CS)

Golden Agri-Resources
Maintain OUTPERFORM
Price (25 Jul 13 , S$) 0.55
TP (prev. TP S$) 0.67 (0.80)
A price for everything

● We have cut GGR’s FY13E and FY14E earnings forecasts by 22% and 15%, respectively. Its target price has been lowered to S$0.67 from SG$0.80.

● GGR remains one of the most leveraged plantation companies to palm oil prices—for every RM100/t decrease in palm oil prices, its earnings would fall by 8%. Therefore, it works both ways—when palm oil prices eventually improve, GGR's share price should be quick to react positively.


● In 2013, GGR profits are expected to be hit on all fronts: (1) Weaker palm oil prices should result in a much weaker profit contribution YoY; (2) Refining margins in Indonesia should be further eroded, as numerous new refining capacities in Indonesia kick in; and (3) Crush margins in China remain depressed and the operating environment remains difficult due to overcapacity.

● GGR’s share price has fallen 16% YTD. There are no short-term positive catalysts, but we retain our OUTPERFORM rating, as GGR trades at a 2014E P/E of 12x. Its P/E appears attractively priced among the large-cap plantation stocks

Prospects for palm oil remain bearish
In our new report entitled Are we there yet? No, dated 29 July, we maintain that palm oil prices will face downward pressure for the remainder of 2013, because:
(1) We expect weaker demand over the next few months from China and India where edible oil inventories remain relatively high YoY.
(2) Palm-biodiesel’s price advantage has diminished, because palm oil prices are almost at par with crude oil prices.
(3) The palm oil-soyoil price gap has narrowed to US$160 per tonne vs. US$400 in December 2012—this is no longer a demand catalyst.
(4) We expect a bumper soybean crop in the US, a sharp rebound from the drought-ravaged crop in 2012. So far, soy crop conditions remain good in the US.
(5) Palm oil production rises seasonally in 2H (potentially peaking in November), and inventories traditionally rise in a high production period.

Golden Agri—A price for everything
Cut profit estimates. We have cut our palm oil price assumptions to RM2,300 for 2013E (from RM2,600) and RM2,600 for 2014E (from RM2,800). As such, we have cut GGR’s FY13E and FY14E earnings forecasts by 22% and 15%, respectively. Its target price has been lowered to S$0.67 from SG$0.80. GGR remains one of the most leveraged plantation companies to palm oil prices—for every RM100/t decrease in palm oil prices, its earnings would fall by 8%. Therefore, it works both ways—when palm oil prices eventually improve, GGR's share price should be quick to react positively.

Dodging bullets: In the short term, GGR profits would be hit on all fronts: (1) Plantations: Although we expect 2013E FFB production to increase YoY by some 10%, weaker palm oil prices should result in a much weaker profit contribution YoY. Palm oil prices averaged RM2,320 in 2Q13, down 28% YoY from RM3,210 in 2Q12. (2) Refining margins in Indonesia should be further eroded throughout 2013, as numerous new refining capacities in Indonesia kick in. (3) Although crush margins in China have improved in FY13, they remain depressed and the operating environment remains difficult due to overcapacity.

Poised for acquisitions. GGR raised US$400 mn through a convertible bond in October 2012 to fund a plantation acquisition which fell through. It is poised to acquire more plantation landbank. If palm oil prices remain weak, we envisage a rise in plantation M&A.

A price for everything. GGR’s share price has fallen YTD by 16%. Although we see no immediate positive catalysts, we have maintained our OUTPERFORM rating as GGR is trading at a 2014E P/E of 12x even after cutting our earnings estimates. Its P/E appears attractively priced among the large-cap plantation stocks.




Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 29/07/13

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