SINGAPORE (Aug 15): UOB Kay Hian is maintaining its “hold” call on Golden Agri-Resources (GGR) with a target price of 34 cents as its 2Q17 and 1H17 core net profits were in line with the research house’s forecast.
Despite a 56% decline in 1H17 earnings, analyst Leow Huey Chuen said in a Tuesday report that the group is expected to show better performance in 2H17 on the back of higher production and stable CPO prices.
See: Golden Agri posts 56% decline in 1H earnings to US$59 mil
The group’s earnings in the plantation division were impacted by lower q-o-q sales volume, while weaker margin cause its oilseeds division to fall too.
On a y-o-y basis, the plantation division improved, mainly supported by higher FFB production and CPO ASP.
The management is maintaining its production growth guidance of 15-20% for 2017 and growth would likely hit the higher end of the guidance.
“We maintain our FFB production growth forecast of 12% yoy for 2017, which is lower than management’s guidance. Every 5ppt increase in FFB production growth will increase our 2017 net profit forecast by 8%,” says Leow.
The analyst believes that the current prices have already factored in the higher production and earnings expected for 2H17.
Meanwhile, there are rising concerns on the potential CPO price weakness going into 2018 with another round of higher palm oil production and bumper soybean crops to come.
Shares in GGR are trading at 37 cents as at 12.09pm.
