What is the news?

Golden Agri-Resources (GAR) reported US$158.1mn net profit for 1H13, down 41.5% YoY. The results account for 38%/36% of consensus/PSR full-year forecast.

How do we view this?

The weak performance was attributed to lower CPO price, which fell 24.9% yoy. Additionally, production was poorer due to palm tree’s biological slow down following the bumper crop last year. Production cost has also increased due to higher fertilizer application.

Investment Actions?

We believe CPO price is likely to stay muted in the immediate term due to a seasonal increase in production (expected to peak in Oct) while demand is expected to remain lackluster given the anticipated higher soybean oil (CPO substitute) supply from the US. We trim our earnings estimates for FY13E-15E by 14-15%, after factoring in the 2Q13 results and adjustments to cost of production. As such, our price target is lowered to S$0.50, based on a blend of PE (12.0x FY14E) and DCF valuations. Maintain Neutral.

Source: PhillipCapital Research - 5 Aug 2013