Liquid proxy to rising CPO price
? GGR’s FY21 core net profit was above our expectations on better-than-expected CPO price and higher downstream profit.
? Upgrade to Add rating with a higher SOP-based TP of S$0.34 as we see potential trading opportunities in the stock as a proxy to rising CPO price.
? Every US$100/tonne change in CPO price achieved (net of export taxes and levy) could lift earnings by US$112m.
Final results and dividends were above expectation
Golden Agri-Resources’ (GGR) posted an FY21 core net profit of US$489m, which is 22% and 18% ahead of our and consensus’ full-year forecasts. The better-than-expected earnings were due mainly to stronger-than-expected CPO price and profit margin achieved by its downstream division. The group declared a final dividend of S$0.01077 per share, bringing total dividend for the year to S$0.01605 — above expectation. The dividend payment translates into a 25% dividend payout from its underlying profit and a dividend yield of 3.7%. The group’s core net profit is US$13.4m higher vs. its reported as we stripped off the deferred tax expense of US$48m and forex gain of US$34m.
All key business segments posted stronger earnings
The plantation and mill segment posted an 87% yoy improvement in EBITDA to US$779m in FY21, driven mainly by higher net CPO prices (+54% yoy to US$1,100/tonne). FFB output from nucleus estates grew 3% yoy to 7.5m tonnes in FY21, but this was partially offset by marginally higher costs of production for CPO of US$300 per tonne. The group’s palm and lauric division recorded a 70% rise in EBITDA to RM435m as this division posted a higher EBITDA margin of 4.3% in FY21 (vs. 3.6% in FY20) due to its strategy of producing more value-added products.
Upgrade to Add with a higher TP of S$0.34
For FY22F, GGR guided for a 5% FFB output growth and flattish cost of production. It stays positive on CPO price prospects as it expects the tight vegetable oil situation to persist due to production challenges (labour issues in Malaysia, under-fertilised smallholder plantations, and dry weather conditions in South America). We lift our FY22- 23F EPS forecasts to reflect our recently revised higher CPO price assumptions and higher margin for its downstream business. The projected 11% yoy decline in FY22F core net profit is due to expectations of lower downstream profit. We raise our TP to S$0.34 due to higher valuations accorded to its downstream business following our earnings upgrade. We continue to base our TP at a 10% discount to SOP. We upgrade GGR from Hold to Add on a potential trading angle as a proxy to rising CPO prices, due to concerns over shortages in the global edible oils market from the ongoing Russia-Ukraine conflict. Current domestic CPO price in Indonesia of US$1,185/tonne is higher than our average
CPO price assumption of US$827/tonne. We estimate every US$100/tonne change in CPO price assumption (net of taxes) will raise our net profit forecast by US$112m. Share price is supported by a dividend yield of 3% and EV/ha of US$12.2k per ha.