What is the news?

3Q12 core net profit (excluding bio-asset gains and exceptional items) is below expectations, with 9M12 at 66% of our FY12 estimate and 66% consensus. FFB production increased by 11% yoy. EBITDA fell 5% yoy and 5% qoq to US$190m due to lower CPO selling price and high raw material (soybean) for its China operations. GAR also declared an interim dividend of S$0.006 per share.

How do we view this?

We expect 4Q12 earnings to be weaker qoq due to lower CPO price despite stronger production. 3Q12 results were weaker qoq due to (1) lower selling prices achieved; (2) a higher inventory of 48 tonnes that was above the 435,000 tonnes stocked at end-Jun 12 due to logistics issues; (3) higher soybean input cost for its China operations; and (4) a higher effective tax rate.

Investment Actions?

We expect the weak CPO prices will continue to weigh down GAR’s earnings performance in 4Q12, given that more than 90% of its earnings derive from CPO sales. We cut our FY12E earnings estimate by 12% to account for the weaker 3Q results while fine-tuning our FY13E/14E. We trim our target price from S$0.725 to S$0.68 (based on our new blended 12.5x FY13E P/E and DCF valuations) but maintain our Accumulate rating.

Source: PhilllipCapital Research - 14 Nov 2012