• Golden Agri-Resources’s 1Q22 earnings came in above our but in line with Street’s full-year estimates. While the current export ban will be negative for all Indonesian players, we do not expect this ban to be in place for long.
• While earnings should remain relatively healthy in 2022F due to elevated CPO prices, we believe valuation is fair at the current juncture, as it is trading within its peer’s range of 5-9x 2023F P/E.
• Maintain NEUTRAL rating on Golden Agri-Resources with SOP-derived target price of S$0.30, 7.1% upside with ~6% yield.

Golden Agri-Resources Recorded US$139m in Core Net Profit for 1Q22 (+98.6% Y-o-y)

• Golden Agri-Resources (SGX:E5H) recorded US$139m in core net profit for 1Q22 (+98.6% y-o-y), due to higher ASPs. Its results exceeded our expectations at 30% of FY22F forecasts, but were in line with Street estimates, at 25%.
• 1Q22 nucleus FFB dropped 21% y-o-y, but was flattish q-o-q (+0.4%). For FY22, Golden Agri-Resources continues to guide for a FFB growth of 5%, with cropping patterns expected to normalise to 45% and 55% in 1H and 2H. We reduce our FFB growth projections slightly to 0-3% (from 3-5%) for FY22-23.

Impact of Export Ban Not Seen Yet

• Golden Agri-Resources achieved a CPO ASP of US$1,303/tonne in 1Q22 (-16% q-o-q, +42% y-o-y). Nett of tax, the effective price was US$1,177/tonne. GGR has yet to see the impact of the export ban on its ASPs. Of the total sales volume, 30% is affected by this ban, ~20% is sold domestically, 25% is exported as value added products (ie are not banned), and the remaining 25% involves sales made at its overseas operations.
• While Golden Agri-Resources continues to commit to its domestic sales volumes, it is reducing its external FFB and CPO purchases during this period. In terms of storage, Golden Agri-Resources is able to store about three months of inventory, while its inventory at end-March is below one month of supply.
• Unit cost was US$304.00/tonne in 1Q22 (+6.7% y-o-y), on the back of higher fertiliser prices. Golden Agri-Resources has applied 20% of its annual fertiliser requirements in 1Q22 thus far.
• For 1H22, its fertiliser costs are expected to rise by less than 10% y-o-y due to its usage of leftover fertiliser from FY21. However, in 2H22, this is expected to rise by > 60% y-o-y, although Golden Agri-Resources has yet to secure its full year requirements. With this, Golden Agri-Resources expects costs to rise 15% y-o-y in 2022, in line with our estimates.

We Raise FY22-23F Earnings by 4-22%

• We raise FY22-23F earnings forecast for Golden Agri-Resources by 4-22% after adjusting for higher CPO prices of MYR5,300/tonne for FY22F (from MYR4,300) and MYR4,300/tonne for FY23F (from MYR3,600).
• As our CPO price assumptions are already lower than prevailing prices, we have not imputed any significant impact from the export ban on GGR’s earnings, as we expect this ban to be short-lived.

Still NEUTRAL

• Our SOP-based target price for Golden Agri-Resources remains relatively unchanged at S$0.30, as we have rolled forward our valuation period to 2023. Our target price includes an ESG discount of 6%, based on our ESG score for GGR of 2.7. We believe valuations are fair, as Golden Agri-Resources is trading within its peer range of 5-9x 2023F P/E.

Source: RHB Invest Research - 13 May 2022