RHB raises Golden Agri earnings estimates on lower unit costs and higher downstream contributions

Golden Agri recorded US$362 million in core net profit in 1HFY2022, 110.3% higher y-o-y due to higher average selling prices (ASPs) — exceeding expectations at 78% of RHB’s forecasts and 61% of street’s estimates.

This is mainly due to lower-than-expected unit costs as well as stronger-than-expected contributions from its oleochemical JV, offset by lower-than-expected fresh fruit bunches (FFB) output, the analysts explain.

Golden Agri achieved a net of tax crude palm oil (CPO) ASP of US$1,135 per tonne in 1HFY2022, 57% higher y-o-y. It managed to circumvent some of the export ban impact by selling more value-added products which were unaffected by the ban, resulting in only 36% of its 1HFY2022 sales volume being affected.

The company’s 1HFY2022 nucleus FFB dropped 6.5% y-o-y despite a 9% y-o-y rise in 2QFY2022 FFB output, RHB points out. “For FY2022, Golden Agri is now guiding for a slightly lower FFB growth of 4%, expecting 3Q to be the peak quarter. To be conservative, we keep our FFB growth projections at 0%-3% for FY2202-FY2024,” they add.

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Meanwhile, downstream margins rose to 5.3% in 1HFY2022 on the back of the wide tax differential between CPO and processed palm oil. This margin is likely to narrow in 3Q, given the 2-month tax levy holiday, says RHB.

Golden Agri has applied 44% of its fertiliser requirements in 1HFY2022 thus far, the analysts highlight. Unit costs could rise in 2HFY2022 as the company catches up with its fertiliser application while the bulk of the higher priced fertiliser would be recognised. However, it expects higher output to help offset the higher fertiliser costs.

“All in, for FY2022, Golden Agri expects costs to rise 10%-15% y-o-y. We bring down our unit cost assumptions slightly for FY2022, as we had previously assumed an increase of 20%-25% y-o-y,” they add.

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Meanwhile, OCBC Investment Research analyst Chu Peng cites rise in CPO prices, accretive acquisitions done at reasonable valuations, offers made by third parties for acreage and supportive government policies as potential catalysts. He has a “hold” call on Golden Agri with a fair value estimate of 30 cents.

As at 10.30am, shares in Golden Agri are trading at an unchanged 28 cents.