Golden Agri-Resources registered worse-thanexpected 2Q13 net income of US$45.3 million, down 58% y-o-y compared to the same period last year. This mainly attributable to the decline in Crude Palm Oil (CPO) FOB prices (-25% y-o-y) as well as rising labor and fertilizer costs, which more than offset better contributions supported by new refinery capacity coming on stream.
The poorer-than-expected earnings came mainly from its Indonesian operations, whilst its China operations gained traction in strengthening its downstream presence via (1) developing distribution channels to enter new areas in China, (2) sourcing for cheaper raw materials, and (3) pursuing valueadded products such as specialty fats.
Its balance sheet remains resilient with net gearing at 11%, compared to 8% in FY12.
Looking ahead, the firm plans to expand palm oil plantations by 35K-45K hectares (representing 7.5%
- 9.7% of total planted area), increase milling and processing capacity, as well as extend distribution coverage and logistic facilities. Projected capex is expected to come in at approximately US$550 million.
We hold the conviction that the seasonal ramp-up of CPO production in the second half of 2013 without a corresponding increase in demand for edible oils, could cap upside to CPO prices, and hence Golden Agri’s share price. The key catalyst for the counter is likely to be the prospect of M&A activities, given its attractive valuations with consensus FY14E P/E at 10.8X and trailing P/B at 0.6X.
Publish date: 05/08/13