Maintain NEUTRAL and SOP-derived TP of SGD0.30, 7.1% upsidewith c.6% yield. Golden Agri’s (GGR) 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.
GGR recorded USD139m in core net profit for 1Q22 (+98.6% YoY), 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% YoY, but was flattish QoQ (+0.4%). For FY22, GGR 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. GGR achieved a CPO ASP of USD1,303/tonne in 1Q22 (-16% QoQ, +42% YoY). Nett of tax, the effective price was USD1,177/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, c.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 GGR continues to commit to its domestic sales volumes, it is reducing its external FFB and CPO purchases during this period. In terms of storage, GGR is able to store about three months of inventory, while its inventory at end-March is below one month of supply.
Unit cost was USD304.00/tonne in 1Q22(+6.7% YoY), on the back of higher fertiliser prices. GGR 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% YoY due to its usage of leftover fertiliser from FY21. However, in 2H22, this is expected to rise by >60% YoY, although GGR has yet to secure its full year requirements. With this, GGR expects costs to rise 15% YoY in 2022, in line with our estimates.
We raise FY22-23F earnings 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 TP remains relatively unchanged at SGD0.30, as we have rolled forward our valuation period to 2023. Our TP includes an ESG discount of 6%, based on our ESG score for GGR of 2.7. We believe valuations are fair, as the counter is trading within its peer range of 5-9x 2023F P/E.
