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Investor CentralGolden Agri-Resources Limited - MANAGEMENT REPLY: Is its distribution strategy working - which of the brokers is right?
28/3/2014 – Analysts generally agree Golden Agri-Resources is on the path to recovery after reviewing its fourth quarter performance.
Apart from slight variations in price targets, just one analyst turned bearish in his rating.
Another criticised the company's distribution and logistics as being "still far from optimum".
In its outlook, Golden Agri says China remains a challenging market because of competitive pressures, but it will continue to focus on developing market presence, manage costs and improve operating performance.
The palm oil industry continues to be positive because of strong fundamentals and support from demand growth in edible oils, oleochemicals and biodiesel.
So, management says it will operate to achieve long-term demand growth, find more downstream opportunities and arrive at greater cost efficiencies.
The company is also enhancing its integrated operations by extending distribution and logistics capabilities to reach out to more destination markets.
These are its Q4FY13 results:
Revenue: +25.2% to US$1.9 bln
Profit: +23% to US$187.7 mln
Cash flow from operations: US$341.4 mln vs US$716.9 mln
Dividend: 0.96 US cents per share vs 0.42 US cents per share
Revenue climbed to US$1.9 bln from US$1.52 bln in the fourth quarter because its businesses in Indonesia and China have improved through higher sales volumes, expanded downstream activity and improved average selling prices.
Indonesian agri-business revenue increased from US$4.76 bln to US$5.22 bln despite lower average international crude palm oil price of US$797 per metric tonne compared to US$959 per metric tonne previously, because of higher sales volume of crude palm oil and refined palm products which are supported by expanded downstream activities.
China agri-business revenue also increased from US$1.29 bln to US$1.36 bln as a result of higher sales volume of soybean meal and refined edible oil products, and improved average selling prices of soybean meal.
Profit before tax was lower at US$157 mln compared to US$118.2 mln previously because of lower gross profit from Indonesia which was a result of lower average international crude palm oil prices.
Debt as at December 31, 2013 was US$2.58 bln, of which US$1.06 bln is repayable within one year or less.
Jesslyne Widjaja, daughter of CEO Franky Widjaja, now oversees corporate strategy and business development, with her promotion to Director, Corporate Strategy & Business Development, effective March 5, 2014.
Ms Widjaja was previously Group Vice President, Corporate Finance, since October 2011.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
Bullish analyst report
OSK-DMG Securities says a rise in palm oil prices should give Golden Agri-Resources the momentum to recover.
Its improved downstream operations and lower costs could also be improvement catalysts.
Looking at crude palm oil prices, the US$809 per metric tonne it earnt was higher than forecasted and cash cost was lower at US$333 per metric tonne, compared to the US$340 per metric tonne it had assumed.
Nucleus fresh fruit bunch production was still in line with the forecast of 7 metric tonnes.
In terms of nucleus planted area, Golden Agri has yet to recognise the 16,000 hectares of land acquired in 2012 because of a delay in ownership transfer, but this should take effect in H1FY14.
Golden Agri is looking to build its first 1 metric tonne biodiesel plant, which is scheduled to be ready in the second half of FY15.
From a SWOT analysis:
Golden Agri is the biggest plantation company in Indonesia with 386,000 hectares of nucleus plantation.
It is the biggest cooking oil producer in the country with a geographic spread and a strong balance sheet.
Opportunities lie in the Indonesian government's programme to use palm oil as an alternative fuel, and growing cooking oil market share in China and India.
Threats come from regulatory changes on plantation ownership which could limit future expansion plans, and Indonesia's over-expansion in refining capacity which could squeeze downstream margins.
And for weaknesses, Golden Agri's distribution and logistics is still far from optimum.
Despite that, OSK-DMG Securities Research has a BUY call with a price target of S$0.66.
OCBC Investment Research says in view of the surprise positive fourth quarter financials, it will increase FY14 estimates for the company by 2%-3% and its crude palm oil price estimate to US$835 per metric tonne from US$830 per metric tonne.
OCBC Investment Research maintains a HOLD call with a price target of S$0.52, up from S$0.50.
CIMB Securities Research says the strong quarter was defined by higher crude palm oil sales volumes and kernel crushing margins.
The company has also surprised with a higher than expected dividend payout of 35%, higher than its policy of 30%.
Golden Agri is targeting 5%-10% growth in fresh fruit bunch output for 2014 as trees recover from biological tree stress, and it expects production costs to be flat.
Through organic growth and acquisitions, the company is planning to expand its palm oil plantations by 20,000-30,000 hectares.
The company also thinks the crude palm oil price of US$800 per metric tonne is sustainable.
However, there is speculation a sharp price spike for crude palm oil prices because of weather uncertainties brewing.
CIMB Securities Research maintains a HOLD call with a price target of S$0.60.
Bearish analyst report
Phillip Securities Research is more on the conservative side as it says its rerating catalyst comes from the higher margin assumptions for its China operations.
Phillip Securities Research maintains a NEUTRAL call with a price target of S$0.55, up from S$0.50.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. What caused interest on borrowings to increase from US$75.5 mln to US$101.7 mln?
Management Reply:The increase in interest on borrowings in 2013 was mostly related to the increase in interest bearing debts from US$1.86bn as at end-2012 to US$2.58bn at end-2013.
2. How is it going to repay US$1.06 bln which is due within a year or less?
Management Reply:Out of US$1.06bn of short-term debts, only US$350mn is the current portion of long-term debts. The remaining is working capital loans which are usually extendable every year.
(Total number of questions in the full story: 17)
We thank the company for the answers provided.
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