• Maintain NEUTRAL with higher SGD0.30 TP (from SGD0.25), 7% upside. With CPO prices crossing the MYR5,000/tonne mark amidst a combination of fundamental and speculative factors, we believe share prices have yet to catch up with CPO prices. Golden Agri’s valuations – post earnings upgrade – are fair, trading at 7.9x 2025F, vs its peers’ range of 7-11x.

• CPO prices continue rising; now at >MYR5,000/tonne (+15% in the past month). We believe this run-up is due to four catalysts: i) The spike in crude oil prices (+18% in two months) due to heightened geopolitical tensions; ii) weather issues in South America resulting in slower-than-expected soybean planting progress in the initial few weeks of planting – although this has since caught up. This raised soybean oil prices by 14% in the last three weeks; iii) the Thai Government’s ban on palm oil exports until year-end to try to control rising prices of cooking oil. Although Thailand is not a huge producer or exporter of palm oil, this has affected sentiment; iv) (more speculative in nature) Donald Trump’s win in the US General Elections. In the 2016 election when Trump won, soybean and PO prices rallied 17% and 28% a few months before the election. Post election, prices rose further, by 10% and 11% to a peak of USD832/tonne and MYR3,306/tonne from end-2016 to early 2017.

• Rest of 2024 to be susceptible to speculative activities… We believe prices are unlikely to decline to <MYR4,000/tonne in the near future as geopolitical risks remain very much in play, which would also keep crude oil prices elevated and speculative forces active. In addition, once Trump’s 2.0 policies are made known, prices may settle down and come off their highs.

• ….while fundamentals for 2025 are improving, we believe the culmination of the low output and stock levels in Indonesia in 2024, increasing biodiesel mandates in Indonesia in 2025, and tightening supplies of sunseed and rapeseed & canola in 2025, will lead to a more apparent deficit in global oils and fats in 2025. This will, in turn, lead to stronger vegetable oil prices in 2025, with stock/usage ratio for the 17 oils & fats falling to a 15-year low of 12.4% in 2025 (vs the historical average of 13.6%).

• As such, we raise our CPO price assumptions for 2024 to MYR4,100/tonne (from MYR3,900), for 2025 to MYR4,300/tonne (from MYR3,800), and for 2026 to MYR4,100/tonne (from MYR3,800). Overall, we expect prices to stay higher in 1H25, trading at MYR4,400-4,800/tonne before moderating in 2H25 to MYR4,000-4,400/tonne during the seasonal peak.

• We raise earnings by 8%, 20%, and 16% for FY24-26F. Our TP includes a 10% ESG discount and is based on an unchanged SOP. We believe valuations are fair for GGR, trading at 7.9x 2025F, vs peers’ 7-11x.

Source: RHB Securities Research - 12 Nov 2024