SINGAPORE (June 20): OCBC is maintaining its “hold” recommendation on Golden Agri-Resources with a fair value estimate of 38 cents, as it sees few catalysts in the nearer-term and believes the stock is still sensitive to crude palm oil (CPO) price movements.
In a Tuesday report, lead analyst Jodie Foo notes how palm oil futures have declined about 5% over the past month.
Given mixed signs of demand from the group’s key markets in China, India and Europe, OCBC estimates that a slowdown in palm oil demand, coupled with high palm oil supplies, could cap prices to their year-end forecast of MYR2,650 ($858.16) per metric tonne.
Nevertheless, Foo is positive on the group’s new clones of high-yielding oil palm planting materials, Eka 1 and Eka 2, which are envisaged by Golden Agri to increase yields to over 10 tonnes of CPO/hectare/year at prime age under optimal weather and soil conditions.
(See also: Golden Agri-Resources announces new planting material to increase CPO yields to ‘highest in industry)
“[10 tonnes/hectare/year] is a contrast to Indonesia’s industry average yield of below four tonnes/hectare/year. Over the next five years, the group will cultivate a sufficient quantity to plant over a larger commercial area starting in 2022,” says Foo.
“This longer term development is particularly important, in view of [Golden Agri] estates’ average age of ~16 years (including plasma), which is considered to be one of the oldest among plantation peers. Replanting activities with higher-yielding seeds are thus expected to remain a key focus to keep a favourable age profile and sustain production growth,” he adds.
As at 12.54pm, shares of Golden Agri are trading 1.35% lower at 36 cents.
