• Maintain NEUTRAL, with new SOP-based SGD0.26 TP from SGD0.29, 2% downside. Golden Agri’s 1Q24 earnings disappointed mainly due to El Nino- affected output. Productivity should improve more significantly in 2H24F, as the weather has since normalised. We believe its valuation remains fair, as the stock is trading at 9.2x 2024F P/E, which is at the mid-end of its peer range of 7-11x.

• GGR recorded US55m (-35% YoY) core net profit in 1Q24. This was below expectations, making up 18% and 13% of our and Street FY24F – mainly due to lower-than-expected FFB output. Our core net profit has stripped out a USD22m forex loss and USD4m deferred tax income.

• 1Q24 nucleus FFB fell 20% QoQ and 28% YoY – significantly lower than management’s original guidance of flattish YoY growth and our projection of 0% YoY. This is due to the lingering effects of El Nino as well as higher replanting activities (6,000 ha done in 1Q24). Management expects to continue seeing the El Nino impact in 2Q24 although output should recover QoQ before improving more significantly in 2H24F. It is now guiding for a -1 to -3% growth in production for FY24F. As such, we lower our FFB growth to -7% (from 0%) for FY24F, while keeping our 2% growth intact for FY25F-26F.

• Inventory build-up cleared in 1Q24. Its CPO inventory level has normalised at end-1Q24 to 530k tonnes (vs 650k in 4Q23). This, together with a 10% YoY rise in external FFB purchases in 1Q24, led to a smaller 5% YoY decline in CPO output.

• Unit costs rose 5% QoQ but fell 7% YoY in 1Q24 to USD322/tonne. GGR applied 20% of its annual fertiliser requirements in 1Q24, slightly below expectations. It continues to guide for FY24 unit costs to moderate slightly by 4-5% YoY to c.USD310/tonne, lower fertiliser tender prices of 30% for 1H24 due to higher maintenance costs. To be conservative, we raise our unit cost assumptions by 5% pa in accordance with the lower output.

• Downstream sales volume rose 1% QoQ and 10% YoY. Management guided that EBITDA margin for this division remained stable at around 5% in 1Q24 (5.3% in FY23). It continues to expect 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-26F earnings by 8-14% after lowering FFB output and raising unit costs. Our TP includes an 8% ESG discount. We believe its valuation is fair, as GGR is trading at 9.2x 2024F P/E, which is at the mid-end of its peer range of 7-11x.

Source: RHB Research - 16 May 2024