Thursday, October 10, 2013

Golden Agri: Headwinds remain (OCBC)

Golden Agri:
Fair value S$0.465
add: 12m dividend forecast S$0.010
versus: Current price S$0.515

Headwinds remain
• Bearish CPO outlook to early 2014
• US debt ceiling worries
• Likely to underperform

Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, could continue to underperform with average CPO prices down 22% YoY and 2% QoQ in 3Q13.
Outlook for CPO prices is also likely to remain muted, with stockpiles growing faster than expected going into 2H13. Market watchers are expecting an excess supply of oilseeds (soy, corn etc) to further weigh on CPO prices. Meanwhile, the impasse over the raising of the US debt ceiling could send the US economy into a recession, further weighing on global sentiment. In light of the headwinds ahead, we maintain our SELL rating on the stock with an unchanged fair value of S$0.465.

CPO stocks growing faster than expected
Crude palm oil (CPO) stockpiles in Malaysia are piling up faster than expected according to a recent Reuters poll, where industry watchers see inventory in the world’s second largest CPO producer climbing to 1.91m tonnes, up 15% from Aug and also the highest since Apr. And as palm trees usually produce more fruits in the second half of the year, market watchers expect Sep output to surge 15% from Aug to 2.0m tonnes when the Malaysian Palm Oil Board publishes its report on 10 Oct (Thu) . As such, industry research Oil World believes that CPO prices could drop to a low of RMB2150/MT by early next year, citing rising global stocks and an excess supply of oilseeds (soy, corn etc).

Geo-political events also weighing on sentiment
Meanwhile, geo-political events are also weighing on sentiment. Key among which is the impasse over the raising of US’ debt ceiling. Some experts warn of world-wide implication should the US government run out of money to pay its bills, as this could severely hurt the world’s largest economy and even send it back into recession . They also expect it to weight on the USD and raise interest rates across the board. Also expected to be affected is the demand for crude oil, and should crude prices fall below US$100/barrel, it would curtail the bio-diesel demand for CPO (even though both Malaysia and Indonesia have started new initiatives to increase the domestic mandate of bio-diesel).

Maintain SELL with unchanged S$0.465 FV
Against this bearish background, Golden Agri-Resources (GAR), being one of the largest oil palm plantation owners in the world, could continue to underperform (CPO prices on average down 22% YoY and 2% QoQ in 3Q13). Hence we maintain our SELL rating on the stock with an unchanged S$0.465 fair value.



Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 09/10/13

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