• Downgrade to NEUTRAL from Buy, with new SOP-based SGD0.29 TP from SGD0.30, 5% upside. Golden Agri’s FY23 earnings disappointed. While we expect moderate earnings growth in 2024 to come from lower unit costs, we believe valuation is now fair, as the stock is trading at 8.2x 2024F P/E, which is at the higher-end of its peer range of 6-9x.

• GGR recorded US47m (-43% QoQ) core net profit in 4Q23, bringing FY23 core net profit to USD284.3m. This was below expectations, making up 92% and 60% of our and Street FY23F – mainly due to higher-than-expected effective tax rates in 2H23 of 31% as well as higher-than-expected unit costs. Our core net profit has stripped out a USD80m one-off tax expense for business structure streamlining incurred in 4Q23.

• GGR declared a 0.613 SG cents dividend for 2023 (FY22: SGD1.791), implying a core net payout ratio of 20%, or FY23 yield of 2.2%

• 4Q23 nucleus FFB fell 12.1% QoQ and rose 0.4% YoY, bringing FY23 output down 4.5% YoY, ie lower than management’s growth guidance of -3% YoY, but in line with our projection of -5% YoY. While the dry weather – experienced in South Kalimantan for 5-6 months – has subsided, GGR continues to see flooding in West Kalimantan, even now. It expects the dry weather to impact 2H24 FFB output, and is projecting flat YoY FFB output growth in 2024. As such, we lower our FFB growth to 0-2% (from +2%) for FY24F-25F.

• Inventory build-up remained in 4Q23. Its CPO inventory level remained relatively high at end-4Q23 to 650k tonnes (vs 615k in 3Q23 and normalised levels of 440k tonnes). This could have resulted in lower CPO sales volume in FY23, which should be delivered in 1Q24.

• Unit costs fell 3% QoQ but rose 24% YoY in 4Q23, bringing FY23 costs to USD325/tonne (+0.6% YoY). GGR applied 100% of its annual fertiliser requirements in FY23. It is guiding for FY24 unit costs to moderate slightly by 4-5% YoY to c.USD310/tonne, despite lower fertiliser tender prices of 30% for 1H24 due to higher maintenance costs. We raise our cost assumptions accordingly.

• Downstream volume fell 0.2% QoQ and rose 0.8% YoY in 4Q23, bringing FY23 volumes up 12.1% YoY. Downstream EBITDA margin was at 5.3% in FY23 (down from 9% in FY22), in line with its guidance of 4-6%. Going forward, management expects to be able to sustain its margin at 5% for 2024, on the back of sustainability premiums. Given the 100% utilisation rate for its downstream capacities, GGR is expanding its refinery capacity by 450k tonnes (9%) in 2026 by focusing on differentiated consumer products.

• We lower FY24F-25F earnings by 12-14% after lowering FFB output and raising unit costs. Our TP includes a 6% ESG discount. GGR is trading at a fair 8.2x 2024F P/E, which is at the higher end of its peer range of 6-9x.

Source: RHB Research - 29 Feb 2024