• Core earnings just 1.2% below forecast
• Higher depreciation expected
• Worst may be over; but no catalyst

FY15 results within expectation

Golden Agri-Resources (GAR) saw its FY15 revenue slip 15% to US$6510.1m, but it was just 3% below our forecast; while it also posted a net loss of US$16.7m, it was mainly due to a bio-asset fair value loss of US$197.7m. Excluding this and other one-off items, core earnings were flat at US$221.4m, or 1.2% shy of our estimate. GAR declared a final dividend of 0.5 S cent/share, versus a total of 0.585 S cent in FY14.

Large fair value revaluations unlikely

On the large fair value revaluation loss of US$197.7m, GAR is unlikely to see more of such large revaluations in the future; this due to the change in accounting treatment for biological assets that is effective from 1 Jan 2016. It is opting to revalue the bearer plants back to historical cost and be included as fixed assets to be depreciated over their useful life (15 years in this case), or an additional US$81m every year. It would also be adjusting the book value of its plantation assets down by about US$6.65b on a pro-forma FY15 basis to US$1.19b, with the charge taken against its equity.

Expects lower CPO output; but prices should hold up

For 2016, GAR expects to see lower production (fall of 8-10%) due to the El Nino effect; but the impact will be mitigated by expected higher CPO prices, along with support from the bio-diesel mandate. It adds that it will continue to optimise margins through further vertical integration of its operations, as well as improving its yield and cost efficiencies.

And to achieve that, GAR intends to spend about US$110m on its downstream operations, mainly to extend product portfolio, distribution coverage and global market reach as well as logistic facilities. As for its upstream business, GAR intends to spend just US$70m, mainly for replanting with higher-yielding seeds to sustain production growth.

Maintain HOLD with S$0.34 fair value

While we believe that the worst may be over, we do not see any near-term catalyst for a meaningful rebound in earnings just yet; not when crude continues to hover around US$30/barrel and a potential bumper crop is expected for substitute vegetable oils. Maintain HOLD with an unchanged S$0.34 fair value.

Source: OCBC Research - 2 Mar 2016