Golden Agri - Still Fairly Valued; Maintain NEUTRAL

Date: 11/08/2022

Source  :  RHB
Stock  :  Golden Agri-Res       Price Target  :  0.29      |      Price Call  :  HOLD
        Last Price  :  0.285      |      Upside/Downside  :  +0.005 (1.75%)

  • Maintain NEUTRAL, new SOP-based TP of SGD0.29 from SGD0.30, 4% upside. We maintain our ESG score of 2.7 for GGR – while it has managed to reduce its GHG emissions intensity by 25% from 2018 to 2021, water intensity has risen by 15% in the same period. The stock is fairly valued – trading at 7x FY23F P/E, in line with its peer range of 6-11x.
  • CPO prices have plunged on the back of the unwinding impact of Indonesia’s export ban, as well as fears of recession which pulled down commodity prices in general. We believe the price decline could have been slightly overdone, having fallen 44% in seven weeks – much more than the declines in soybean, crude oil and wheat prices (down 31%, 17% and 16%). While regulatory risks still exist, particularly for players in Indonesia, we believe supply concerns will continue to haunt the sector for the rest of 2022 – in view of the logistics backlog in Indonesia and the labour shortages in Malaysia. That said, if these issues are resolved by end-2022, and that Ukraine is able to export its oilseed products as per the grains deal agreement signed, 2023 should continue to be a better year for supply and prices will likely remain under pressure.
  • ESG concerns prevail, but may have taken a backseat. However, the ESG discounts we previously assigned to valuations are still in place. We have reassessed our ESG scores by relooking at the progress made by the industry, identifying shortcomings and any room for improvement. From our analysis, we highlight that, while better disclosure on ESG- related information has been made over the years, progress in mitigating these issues is rather slow. As a result, we have made some upward revisions to the ESG scores of some planters that have made progress – but highlight that several peers have remained relatively stagnant in their ESG efforts, while others have even reduced disclosures.
  • We tone down CPO price assumptions. We continue to expect stock levels to remain tight for the next 2-3 months, possibly until end-3Q, which would provide support for CPO prices. We cut CPO price assumptions for 2022 to MYR5,100/tonne (from MYR5,300/tonne). For 2023, as fundamentals continue to improve – assuming labour shortages are somewhat resolved and the Ukrainian oilseed output is able to be exported, CPO prices could drop further. However, support from a ramp- up in biodiesel mandates and discretionary biodiesel demand coming back would keep CPO prices above MYR3,000/tonne in the medium term. We lower our 2023 estimate to MYR3,900/tonne (from MYR4,300/tonne). Our MYR3,500/tonne assumption for 2024 remains unchanged. As a result, we cut GGR’s FY22-24F earnings by 9-17%.
  • NEUTRAL, with a lower TP of SGD0.29 from SGD0.30. 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 6-11x 2023F P/E.

Source: RHB Research - 11 Aug 2022

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Chart Stock Name Last Change Volume 
Golden Agri-Res 0.285 +0.01 (3.64%) 12,850,200 

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