The Singapore research team at RHB Bank Singapore has maintained “buy” on Golden Agri-Resources (GAR) E5H , as it deems the group’s earnings for the 1HFY2023 ended June as “largely in line” with its estimates.
However, the team’s target price has been lowered to 28 cents from 29 cents previously as GAR’s environmental, social and governance (ESG) score of 2.7 is three notches below the country median. As such, an ESG discount of 6% has been applied to GAR’s target price.
The team has also trimmed its FY2023 to FY2025 earnings estimate by 5% to 7% after inputting lower fresh fruit bunches (FFB) output.
For 1HFY2023, GAR’s earnings fell by 53.2% y-o-y to US$182.3 million ($247.4 million) due largely to the lower crude palm oil (CPO) market price.
GAR’s core net profit for the six-month period stood at US$155 million. Though lower by 57.1% y-o-y, the figure still stood in line with the team’s and consensus expectations at 41% to 42% of their FY2023 estimates. Notably, the group did not declare a dividend in 1HFY2023, unlike the 1HFY2022, where a dividend of 0.8 cents per share was declared.
The team has also lowered its FFB growth projections to -5% for the FY2023, down from 0% as GAR revised its FFB growth guidance for the period to -3% y-o-y. Nucleus FFB for the 2QFY2023 fell by 18% y-o-y, bringing the total output for the 1HFY2023 to a decline of 10% y-o-y, which is lower than management’s original guidance of a “flattish” output. The team attributes this to “relatively wet weather” in 1QFY2023, but has observed that this has since normalised.
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That said, the RHB team has kept its growth assumptions of 2% unchanged for the FY2024 to FY2025.
During 2QFY2023, the team observes that GAR’s CPO inventory level rose at the end of 2QFY2023 to 549,000 tonnes, up from normalised levels of 440,000 tonnes in March. To the team, this could have “resulted in lower CPO sales volume in 1HFY2023, which should be sent out in 2HFY2023.”
In FY2023, the RHB team is expecting GAR’s unit costs to moderate to US$320 a tonne on the back of lower fertiliser prices in 2HFY2023. While unit costs stood at US$342 a tonne in the 1HFY2023, 10% higher y-o-y due to fertiliser prices, prices in the 2HFY2023 are expected to be reduced by 30% on a h-o-h basis.
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The team is also positive on GAR’s prospects as downstream volumes rose 23% y-o-y in 1HFY2023 with stable margins.
“The 23% rise in sales volume came from the recovery post-export restrictions and ban in 1HFY2022. Ebitda margin remained stable at 5.3% in 1HFY2023 (versus 1HFY2022), in line with management’s guidance of 4% to 6%. This is expected to remain relatively stable in 2HFY2023, in line with our 5% margin assumption,” writes the team.
Overall, the team is expecting to see GAR’s earnings improve in the 2HFY2023 on higher productivity and lower fertiliser costs.
GAR’s stock is deemed attractive, trading at 6x FY2024 P/E against its peer range of 7x to 12x.
As at 3.40pm, shares in Golden Agri are trading at 0.5 cents lower or -1.96% down at 25 cents.
