NOT RATED S$0.53
Price Target: 12-month S$0.48 (Prev S$0.45)
• FY13F-15F earnings raised by 3-12% on higher expected 2H13 CPO output, weaker Rupiah; partly offset by lower CPO ASP
• Expansion target cut by 33%; as 1H13 achievement looks too low
• Acquisition of 16k ha and investment in Verdant Fund still on target for completion in 2H13
• NOT RATED. Fair value is adjusted to S$0.48
Earnings revised up. We raised FY13F/14F/15F earnings by 3%/8%/12%. We are slightly more optimistic on 2H13 output, which should account for c.60% of its full year forecast.
We now expect FY13F CPO output to rise by 5% yo- y, instead of 0.4% previously. Weaker imputed Rupiah should also work to improve operating profits, despite lower CPO price (in USD terms). We assumed 18% rise in labour costs next year on expected minimum wage hikes across Indonesia. We expect slower growth in G&A expenses over the next two years, as we understand headcount expansion will slow down, following completion of its Jakarta refinery earlier this year. With lower feedstock costs, FY13F/FY14F refining spread is revised up to US$12/US$35 from US$8/ US$31 respectively.
Expansion target cut. Capex outlay is expected to settle at US$540m this year and US$537m next year; after we cut this year new planting target to 10k ha this year (20% for smallholder estates) from 15k ha; but maintain next year’s expansion target at 15k ha (20% for smallholder estates).
Update on acquisition. Acquisition of 16k ha mature estates and investment in Verdant Fund (to acquire the 17k ha mature estates) are still pending, subject to transfer of land rights. We understand this is still targeted for completion in 2H13. Golden Agri is due to receive dividends from Verdant Fund two years following its additional investment. As at end Jun13, GGR has net debt/EBITDA ratio of 2.04x and net debt/equity ratio of 0.17x. Hence, any fair value losses on its biological assets (non-cash) should bear no consequences on the group’s ability to service its debts.
Fair value adjusted. We revised Golden Agri’s DCF-based fair value to S$0.48 (WACC 12.5%; TG 3%), after imputing the above revisions.
Publish date: 26/09/13