SINGAPORE (May 16): OCBC Investment Research is maintaining its “hold” call on Golden Agri-Resources (GAR) and lowering its fair value estimate to 34 cents, from 37 cents previously.
“GAR’s operating performance will continue to be affected by the prices of crude palm oil (CPO) and competing seed oils, fluctuating foreign currency exchange rates and weather conditions,” says lead analyst Low Pei Han in a report on Tuesday.
GAR in the 1Q18 ended March reported a 68% drop in earnings to US$12 million – accounting for only 6% of analysts’ full-year estimates.
1Q18 revenue fell 11% to US$1.8 billion, corresponding to declines in both palm production output and CPO prices.
See: Golden Agri-Resources reports 68% fall in 1Q earnings to US$12 mil on lower palm production and CPO prices
“The group will be spending US$110 million this year in the upstream segment on replanting with higher-yielding seeds to sustain production growth, as well as continued efforts in yield improvement, cost efficiency and sustainability initiatives,” Low says.
“Another US$110 million will be spent on the downstream segment to extend product portfolio, global market reach and logistic facilities to enhance the group’s integrated operations,” the analyst adds.
According to Low, the group expects to achieve 8-9% production growth for 2018.
“Meanwhile, management expects the demand of palm oil to be supported by global demand growth, including the implementation of the biodiesel mandate in Indonesia,” Low says.
As at 11am, shares of Golden Agri-Resources are trading 1 cent lower, or down 2.9%, at 34 cents. This implies an estimated price-to-earnings ratio of 25.6 times and a dividend yield of 2.2% for FY18.
