SINGAPORE (Oct 5): OCBC Investment Research is maintaining its “hold” rating on Golden-Agri Resources (GAR) with a lower fair value estimate of 35 cents given the group’s nearer-term outlook and lack of catalysts.
This follows its recent inclusion in the 2017 Dow Jones Sustainability Indices (Asia Pacific) in recognition of its sustainability leadership within its industry, which marks the first time GAR has been made a member of the index since its launch in 1999.
In a Thursday report, lead analyst Low Pei Han highlights that sustainable development of palm oil plantations is a "major issue for the industry” and lauds GAR as the only Southeast Asian palm oil company to be included in the DJSI’s Food, Beverage, and Tobacco sector in the Asia Pacific.
The research house expects GAR to post revenue US$7.95 million ($10.84 million) for FY18, which translates into a dividend yield of 1.6%.
“In June this year, Norway banned the public procurement and use of biofuel based on palm oil, a year after its government pledged that the state will not contribute to deforestation of the world’s rainforest,” says Low.
In Low's view, the possibility of other European countries following Norway’s footsteps should be closely monitored by the oil palm industry as the EU is the second-largest importer of palm oil after India.
Additionally, she notes that short-term price fluctuations of stocks are still highly correlated with crude palm oil prices (CPO).
“There has been significant growth in demand for palm oil with the rise of the biofuel industry… Palm oil companies which are keen to remain in the business for the long term have to be serious about sustainability efforts, as consumers are slowly but surely moving to products that are developed in a responsible way,” says the analyst.
As at 11.26am, shares in GAR are trading flat at 38 cents or 18.5 times FY18 earnings.
