Target Price: SGD0.63
2QFY13 Results Let The Street Down
We maintain our BUY call on GGR with the FV unchanged at SGD0.63. Although 1HFY13 earnings fell short of the consensus estimate, it was well within our forecast. The stock is, at worst, fairly valued. We believe the company is the best positioned for a mergers and acquisition (M&A) exercise, and, should acquisitions materialise, its stock valuation could turn out to be lower than currently priced in.
• Short of consensus. GGR’s annualised 1HFY13 core earnings were in line with our forecast of USD319.5m. However, they fell short of consensus expectations by 20.0% (mean estimate).
• Earnings revision. Given that 2H is typically stronger, it does appear that our forecast is too conservative. As such, we have tweaked up our FY13 forecast by 5.5% to USD337.1m. However, we have also trimmed our FY14 net profit forecast marginally to USD358.7m from USD360.8m previously.
• Production weaker than expected. Nucleus fresh fruit bunches (FFB)production fell by 8.9% q-o-q in 2QFY13, resulting in 1HFY13 production being only 1.0% higher compared to our earlier assumption of 10% growth for FY13. Thus, we are trimming our FY13 production growth assumption to 8% and 6% (8% previously) for FY14.
• Driving up cost per tonne. Due to weak production and increase in headcount, cash cost per tonne rose to USD352 per tonne in 1HFY13from USD298 last year.
• Realised price. The realised crude palm oil (CPO) price has been stronger than what we expected, at USD808 vs our USD787 per tonne assumption. As a result, we have raised our effective price for FY13 to USD796, after factoring in the higher-than-expected prices for 1H.
• Better outlook next year. We are maintaining our BUY call on GGR on the improved outlook for the sector next year, although we acknowledge there could be some stock price weakness as the consensus numbers are trimmed.
Publish date: 05/08/13