Golden Agri-Resources Ltd: Focus on expansion in 2010

By Carey Wong
Fri, 26 Feb 2010, 10:18:27 SGT

Golden Agri Resources (GAR) reported its 4Q09 results, which came in slightly under our estimates; this CPO production unexpectedly dipped in 4Q09, slipping 2.6% QoQ, although management earlier said that it was confident it should be able to achieve 10% QoQ growth during its 3Q09 results briefing. Going forward, GAR intends to spend US$400m as capex to expand its palm oil plantations by 50k hectares (planting and acquisition), building up milling capacity in line with the growth in fruit production, and add more downstream processing capacity and distribution and logistics facilities in both Indonesia and China. Despite the slightly disappointing 4Q09 performance, we are keeping our FY10 estimates unchanged; this as we expect CPO demand to grow in line with regional economic recovery. Maintain BUY with S$0.66 fair value.

4Q09 results below expectations. Golden Agri Resources (GAR) reported its 4Q09 results yesterday, which came in slightly under our estimates. Although revenue grew 8.8% YoY to US$643.1m, it was down 4.4% QoQ; it was also 13.3% below our forecast; this as the slight increase in CPO selling price has been offset by a slight decrease in output of palm products. Core net profit was up 64.1% YoY at US$64.9m, it was down 4.5% QoQ, and also 20.7% short of our estimate. For the full year, revenue slipped 23.2% to US$2293.7m, or about 4.1% below our forecast, while core net profit tumbled 46.2% to US$202.6m, or 6.2% short of our estimate. For FY09, GAR has declared a first and final dividend of 0.495 S cent (versus a payout of 0.8 S cent in FY08).

Unexpected dip in CPO production in 4Q09. CPO production unexpectedly dipped in 4Q09, slipping 2.6% QoQ, although management earlier said that it was confident it should be able to achieve 10% QoQ growth during its 3Q09 results briefing. Other than the usual monsoon downpours in Dec, GAR said that it did not experience any major El Nino or El Nina impact. Nevertheless for the full year, GAR managed to increase its CPO production by 13.2% to a record 2.3m tons. On the production front, GAR remains confident that it can continue to lower its overall cost of production from the US$254/ton average seen in FY09 as it has fully utilised the higher price fertiliser stock; management revealed that it has achieved a 40% price savings on 2010 fertiliser stock.

Spending US$400m for expansion. Going forward, GAR intends to spend US$400m as capex to expand its palm oil plantations by 50k hectares (planting and acquisition), building up milling capacity in line with the growth in fruit production, and add more downstream processing capacity and distribution and logistics facilities in both Indonesia and China. Sitting on a cash pile of US$287.5m and a low net gearing of just 0.06x, GAR is confident it can fund its growth strategy without having to make another cash call; the company last raised US$216.5m via a rights issue last year.

Maintain BUY with S$0.66 fair value. Despite the slightly disappointing 4Q09 performance, we are keeping our FY10 estimates unchanged; this as we expect CPO demand to grow in line with regional economic recovery. Maintain BUY with S$0.66 fair value.

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