SINGAPORE (Feb 28): CIMB is keeping its "reduce" call on Golden Agri on worries its average 16-year-old estates may not be as fruitful as before.
Golden Agri is planning to accelerate its replanting efforts to 15,000 ha in 2018 vs. 9,900 ha in 2017. As at end Dec 2017, the group’s palm oil inventory level stood at 480,000 tonnes, lower than the 587,000 tonnes as at end Sept 17.
CIMB is therefore cutting earnings forecasts by 13-15% for FY18-19 to reflect its lower Fresh Fruit Bunches (FFB) output assumptions in view of the group’s plan to accelerate replanting of its estates.
"This results in a lower target price of 31 cents based on 15 times five-year historical earnings," says Ivy Ng Lee Fang in a Tuesday report.
In FY17, Golden Agri's core net profit of US$104 million came in at 70% of CIMB's full-year forecasts of US$148 million.
The weaker-than-expected results were mainly due to lower FFB production. Golden Agri posted FFB output growth of 8% compared to CIMB's output growth projection of 15%.
To derive its reported FY17 underlying profit of US$254 million, Golden Agri added back the depreciation charges of bearer plants of US$149 million.
This figure is higher than CIMB's core net profit of US$104 million for FY17 which excludes depreciation charges, to be consistent with the research house's core net profit calculations for other Singapore planters.
However, CIMB's calculations of FY17 core net profit added back net loss from revaluation of biological assets of RM1 million ($0.3 million), net forex loss of RM20 million and impairment losses amounting to RM46 million for its China plants.
In FY17, Golden Agri posted a 16% y-o-y improvement in FY17 EBITDA as better performance by its plantation segment trumped weaker earnings from palm and laurics and oilseeds segments.
Plantation EBITDA growth of 32% y-o-y was driven by 8% higher FFB production and 10% higher ASPs. On the flipside, downstream EBITDA fell 13% y-o-y due to weaker refining margins while oilseeds and grains EBITDA recorded 21% y-o-y decline as a result of weaker crush margins.
Golden Agri blamed the lower-than-expected 4Q17 FFB output on the El Nino drought in 2015. In its outlook, the group expects strong recovery of FFB yields in FY18 and expects FFB output to increase by 8-10% in 2018.
Management also aims to maintain its FY18 cash costs at US$300 per tonne, which is similar to FY17’s US$299 per tonne. It expects CPO prices to trade in the range of US$650-700 per tonne.
Meanwhile, Golden Agri revealed it has sold its Tianjin plant for US$111 million which should be completed by 2Q18. In view of this, it provided impairment of US$20 million for the plant in 4Q17.
A final dividend of $0.00116 per share was declared in 4Q17, bringing FY17 dividend to $0.00809 from $0.00635 in FY16.
As at 12.12pm, shares in Golden Agri are trading at 36 cents or 18 times FY18 core earnings.
