• Maintain NEUTRAL, with new SOP-based SGD0.25 TP from SGD0.26, 6% downside. Golden Agri’s 2Q24 earnings disappointed mainly due to El Nino- affected output. While productivity should improve in 2H24F as the weather has since normalised, GGR will still end the year with a weaker YoY output in 2024F. We believe its valuation remains fair, as the stock is trading at 9x 2025F P/E, which is at the mid-end of its peer range of 6-11x.

• GGR recorded USD53m (-3% QoQ and -25% YoY) core net profit in 2Q24. This was below expectations, making up 40% and 27% of our and Street FY24F – mainly due to lower-than-expected FFB output and external purchases. Our core net profit has stripped out a USD48m forex loss and USD32m gain on disposal of a JV.

• 2Q24 nucleus FFB rose 7% QoQ and 20% YoY, bringing 1H24 nucleus FFB growth to -9% YoY – lower than management’s original guidance of -1 to -3% for FY24F and our projection of -7% YoY. This is due to the lingering effects of El Nino and higher replanting activities (10,800 ha done in 1H24, +60% YoY). The weather also impacted plasma output which fell by a larger 15% YoY in 1H24. Management believes there should be no more El Nino impact in 2H, with expectation of a QoQ output recovery and an output peak in 4Q. It is, however, lowering its guidance to -5% growth in production for FY24F. We keep our FFB growth at -7% for FY24F and 2% for FY25F-26F, but lower our FY24F external FFB purchases growth to -12% (from -7%).

• Unit costs fell 2% QoQ and 7% YoY in 2Q24 to USD314/tonne. GGR applied 45% of its annual fertiliser requirements in 1H24, slightly below expectations. It continues to guide for FY24F unit costs to moderate further by 5-10% YoY to c.USD300/tonne, on lower fertiliser costs (-15% YoY). To be conservative, we raise our unit cost assumptions by 5% pa in accordance with the lower output.

• Downstream sales volume fell 2% QoQ but rose 12% YoY in 2Q24, bringing 1H volume to +11% YoY. EBITDA margin for this division remained stable at 5.5% in 1H24 (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 5-13% after lowering external FFB output and raising unit costs.

• Maintain NEUTRAL with a slightly lower SGD0.25 TP, which includes an unchanged 10% ESG discount. We believe GGR’s valuation is fair - trading at 9x 2025F P/E, which is at the mid-end of its peer range of 6-11x.

Source: RHB Research - 14 Aug 2024