RHB Group Research has maintained their “neutral” call on Golden Agri-Resources (GAR), raising their target price to 31.5 cents from 26 cents previously.
This sum-of-parts based target price includes an environmental, social and governance (ESG) discount of 6% based on its ESG score for GAR of 2.7.
GAR recorded US$407 million in core net profit for FY21 due to higher contributions from all segments. The results are in line with RHB’s estimates, the analysts note.
The company also achieved a net of tax crude palm oil (CPO) price of US$819 per tonne in FY21, while CPO production grew 7% y-o-y in FY21. GAR declared a final DPS of 1.07 cents, bringing FY21 DPS to 1.6 cents — translating to a net payout of 30% and a net yield of 5.6%.
“While earnings should remain relatively robust in 2022F, we believe valuations are fair at the current juncture, as it is trading within its peer range of 6-9x 2022F P/E, given the recent run-up in its share price,” the analysts add.
GAR's FY21 nucleus fresh fruit bunches (FFB) rose 2.8% y-o-y, with 4Q21 falling 9% q-o-q. For FY22, GAR is guiding for FFB growth of 5%, with cropping patterns expected to normalise to 45% and 55% in 1H and 2H respectively. RHB analysts are keeping their 3%-5% FFB growth projections for FY22-FY23.
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On the back of higher fertiliser prices, GAR booked a unit cost of US$300 per tonne in FY21, 5% increase y-o-y. The company only applied 85% of its annual fertiliser requirements in FY21 and will be using the remaining stock for 2022.
For 1H22, GAR has secured its fertiliser requirements at prices that are 40% higher y-o-y, the analysts note. “Despite this, the company expects costs to remain similar y-o-y in 2022, on improved productivity and efficiencies. We are more conservative in our assumptions, and expect costs to rise by about 10%-15% y-o-y in 2022.”
GAR’s downstream division saw margin improvements in 2H21 to 4.8%, although it was lower y-o-y versus 2H20’s 5.4%. Nevertheless, its FY21 EBITDA margin rose to 4.3% from 3.6% in FY20, given the wide tax advantage of US$162 per tonne for refined products currently versus upstream CPO.
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Sales volumes of its downstream business in FY21 was flattish y-o-y. RHB makes no changes to its downstream sales volume growth assumption of 3% y-o-y for FY22-FY23 as well as its EBIT margin assumptions of 3%-4%.
“We increase our forecasts by 13%-29% for FY22-FY23, after imputing higher CPO prices of RM4,300 per tonne for 2022, RM3,600 per tonne for 2023 and RM3,500 per tonne for 2024.”
GAR is the most heavily traded counter on March 3, with some 76.4 million shares changing hands as at 12.14 pm, with the last done price at 33 cents, up 8.20% for the day.
