SINGAPORE (Mar 5): RHB Research is reiterating Golden Agri-Resources at “sell” with an unchanged target price of 23 cents after earnings reversed further into the red in 4Q18, with FY18 core net loss coming in significantly below expectations.
While RHB believes 2019 will be a better year after an extremely weak 2018, the research house expects earnings to take some time to recover to its previous base of more than US$200 million.
“This will likely be after its landbank is revamped via aggressive replanting and cost management,” says RHB in a recent report.
To recap, Golden Agri reported US$91.3 million of losses from a profit of US$40 million in FY17. This was significantly below expectations, and was mainly due to 17% y-o-y lower CPO prices, and weaker refining margins.
See also: Golden Agri FY18 swings into net loss of US$2 mil on falling CPO prices
Effective tax rates also ballooned on deferred tax expenses from the devaluation of the IDR, and amortisation related to revaluation of assets in 2016. Net DPS of 5.8 cents was declared in 4Q18, which implies a net payout of more than 100%, and a net yield of 2%.
For 2019, Golden Agri intends to replant 15,000ha in 2019 from 10,500ha to rejuvenate its tree age profile of 16 years on average. However, the impact of aggressive replanting activities can only be seen 3-4 years later.
Golden Agri achieved unit costs of US$286/tonne in FY18 on improved FFB output. For 2019, it expects costs to rise on 15% stronger fertiliser prices and 10% higher minimum wages. However, it continues to target unit costs of below US$300/tonne.
RHB is cutting its FY19-20 forecasts by 12-14% after imputing higher unit costs and lower refining margins.
“We apply an EV/ha valuation of US$5,000/ha for Golden Agri’s plantation assets and a target 2019F P/E of 10x for its downstream division in line with its peers’, which are between 10-12x,” says RHB.
As at 6.40pm, shares in Golden Agri are trading flat at 28 cents.
