Thursday, November 21, 2013

Golden Agri-Resilience of the growth outlook (JPM)

Golden Agri-Resources Ltd
Price: S$0.58
Price Target: S$0.70

Company overview
Golden Agri-Resources is the world's second largest oil palm plantation company with a total planted area of over 400,000 hectares located in Indonesia. It is involved in both upstream cultivation and downstream refining. GAR also operates in China through an integrated deep sea port, storage, oil-seed crushing facilities and refinery facilities in Ningbo and Zhuhai.

Investment case
Management has maintained its 5-10% production growth guidance despite flat production trend in 1H13 signaling the potential of strong pick up in 2H13. We forecast a strong c.8% growth in nucleus FFB and CPO production for FY14E translating into a Y/Y sales and EPS growth of 25% and 53%, respectively. We also expect GGR to be the biggest beneficiary amongst the Singapore planters of the IDR depreciation in 3Q13, primarily via its lower operating expenses which is c.70% IDR-denominated.

Resilience of the growth outlook
Besides a recovery from the tree stress due to dryness of weather this year, production kicker should also come from the c.16000 ha of mature area acquired in end-2012 experiencing yield improvement after it comes under the management of the Group. We also expect earnings of its China operations to improve as trading capabilities get boosted by earlier management team hires.

Risks to the earnings outlook in 2014
(1) Any hiccups in the implementation of B10 program in Indonesia, smooth implementation of which is expected to augment CPO demand and strengthen prices; (2) Under recovery in FFB/CPO production, assumed on the back of improving yields.

Price target, and risks to our investment view
Our Dec-14 PT for GAR is based on 14x FY14E P/E which is in line with historical mean. Our PT implies P/E multiples of 22.0x/14.3x and dividend yields of 1.4%/2.1% for FY13E/14E. Key downside risks to our PT include weaker than expected CPO demand and higher than expected output which can depress CPO prices.

Source/Extract/Excerpts/来源/转贴/摘录: JPM-Research,
Publish date: 18/11/13

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