• 3Q NPAT just US$4.4m
• China ops still bleeding red
• SELL with lower S$0.44 FV

Worst showing since 1Q09

Golden Agri-Resources (GAR) is probably seeing its worst set of results since 1Q09, with reported NPAT plunging 86% YoY (-84% QoQ) to just US$4.4m in 3Q14; this despite revenue rising 17% YoY (-10% QoQ) to US$1844.1m. But if we add back forex losses of US$29.3m and exclude one-off disposal gain of US$7.6m, earnings would have been around US$26m; which is still down 28% YoY, also 47% QoQ. According to management, the main drag again came from its Oilseeds segment, which turned in a negative EBITDA of US$18m, hit by continued losses at its China crushing facilities. As a result, 9M14 NPAT slipped 28% to US$135.5m; core earnings fell nearly 14% to US$175.7m, meeting just 57% of our full-year estimate. GAR declared an interim dividend of 0.408 S cent, versus 0.585 S cent for 9M13.

Likely another harsh quarter ahead

While ASPs for CPO appear to be stabilizing around US$828/ton, GAR notes that CPO production is likely to not grow as fast in 4Q14 as some of its plantations are starting to show signs of tree stress from the drought earlier in the year. Management also warns that it may see some fair value losses from biological assets (but this has no impact on our core estimates). More worrying is its China crushing operations - GAR expects to see losses although it has taken steps to reduce utilisation to stem the red ink, as it may to endure another quarter of high cost feedstock. And as feared, inventory rebounded back to 550k tons in 3Q14, versus 456k ton in 2Q14.

Revert to SELL with S$0.44 FV

Accounting for the sharp miss in 3Q14 and potentially a disappointing 4Q14, we see the need to slash our FY14 core earnings by 28% (also cutting our FY15 by 19%). Hence even as we push out our 13.5x valuation peg from blended FY14/15F EPS to FY15F EPS, our fair value slips from S$0.48 to S$0.44. Downgrade to SELL.

Source: OCBC Research - 13 Nov 2014