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

RHB have kept their “neutral” call on Golden Agri with a slightly higher target price of 30 cents from 29 cents previously.

RHB Group Research analysts have kept their “neutral” call on Golden Agri-Resources with a slightly higher target price of 30 cents from 29 cents previously.

The analysts raise their FY2022 earnings estimate for FY2022 by 43% and FY2203-FY2024 earnings by 7%-10% after adjusting for lower unit costs for FY2022 as well as higher contributions from Golden Agri’s downstream operations and joint venture (JV) for FY2022-FY2024.

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.

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.

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

 

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