SINGAPORE (May 16): RHB is keeping its “neutral” call on Golden Agri with 39 cents target price as the research house expects earnings to catch up in the following quarters on the back of stronger downstream margins and falling feedstock prices.
In 1Q17, Golden Agri’s earnings had come in at 18-19% of RHB and consensus FY17 forecasts.
(See also: Golden Agri’s 1Q earnings fall 60.1% to $52.2 mil on higher expenses and forex loss)
“While this may seem lower than normal, we highlight that management guided for higher margins for the downstream palm & laurics segment in the coming quarters, on the back of the reducing feedstock cost trend,” says RHB, “As such, we believe earnings would catch up in the following quarters.”
Golden Agri saw a marked Fresh Fruit Bunches (FFB) output recovery of 29% y-o-y in 1Q17. For FY17, management continues to guide for a 15-20% y-o-y growth on the back of 9,829ha of land coming into maturity. However, it expects to see lower FFB growth in 2Q17 vs 1Q17 and a further moderation of growth in 2H17 from a higher base.
“As such, we maintain our 12% FFB growth forecast for now to be conservative,” says RHB.
Management also expects unit cost for the rest of the year to be maintained at 1Q17’s level of US$302/tonne.
An while Golden Agri plans to replant 10,000ha of land in 2017, only 400ha was replanted in 1Q17, with the bulk of the remaining replanting to be completed in 2H17.
The group also expects higher margins of 2-3% for the rest of the year on the back of lower feedstock costs.
The group should continue to participate in the biodiesel programme, with higher allocation of about 100,000 kilolitres in May-October.
This is based on its increasing capacity of 600,000 tonnes pa by end 2Q17 with the commissioning of its second biodiesel plant, says Golden Agri.
Shares of Golden Agri are trading at 37 cents.
