Strong downstream profit boosts 1H profit
- GGR’s 1H22 core net profit was above due to robust downstream profit.
- We see weaker 2H22 earnings given expectations of lower downstream profit and CPO price.
- Reiterate Hold with a lower SOP-based TP of S$0.28. Its share price is supported by dividend yield of 7.3% and low EV/ha of US$9,864/ha.
1HFY22 above, thanks to stronger-than-expected downstream profit
Golden Agri-Resources’s (GGR) posted an 82% yoy rise in its 1H22 core net profit to US$361m, accounting for 75% and 57% of our and consensus full-year forecasts, respectively. Qoq, core net profit grew 43% to US$207m due to strong downstream profit. We consider the 1H results as above expectations given wider-than-expected profit margins from its downstream business and joint ventures. The group’s core net profit is lower than its reported as we strip off the forex gain of US$41m, net loss on biological asset of US$5m and deferred tax income of US$1m in 1H22. The group declared a final dividend of S$0.008 per share, translating into a dividend yield of 2.9%.
All business segments performed better in 1H22
The plantation and mill segment posted a 43% yoy improvement in EBITDA to US$520m in 1HFY22, driven mainly by higher net CPO prices (+57% yoy to US$1,135/tonne). The higher ASP was partially offset by a 7% yoy decline in FFB output from nucleus estates and 7% rise in costs of production for CPO to US$312 per tonne in 1H22. The group’s palm and lauric division recorded an 82% rise in EBITDA to RM288m as this division posted a higher EBITDA margin of 5.3% in 1H22 (vs. 3.6% in 1H21) due to higher utilisation rates. The group revealed that its broad product portfolio, strategic logistics assets and capability and large pool of destination customers allowed it to perform despite the export ban. We believe the better downstream profit margin in 1H22 could also be due to the wider Indonesia export tax and levy differential between crude and refined palm products. Another key surprise for us came from the 215% surge in share of profit from joint venture of US$42m; the group attributed this to better performance from its oleochemical joint ventures, which were not affected by the export ban.
Reiterate Hold; share price supported by dividend yield of 7.3%
GGR lowered its guidance to 4% FFB output growth vs. 5% previously. Its inventory level also rose to 742,000 tonnes as at end-June against the normalised level of 300,000 to 400,000 tonnes due to the export ban. We lift our FY22-24F EPS forecasts to reflect our higher margin assumptions for its downstream business and joint ventures. We project a weaker 2H22 profit vs. 1H22 given expectations of lower downstream profit. Our TP, still based on a 20% discount to SOP, is reduced to S$0.28 as we shift our valuations for the downstream business to 1x P/BV from P/E methodology previously. We retain our Hold call and believe the share price is supported by dividend yield of 7.3% and EV/ha of US$9,864k. Key upside/downside risks are an increase/decrease in CPO price.
