Golden Agri-Resources (GAR) turned in a pretty muted 2Q16 performance, with revenue down 5% YoY at US$1741.8m, impacted by low production rising from the severe El Nino impact last year. As a result, EBITDA plunged 41% to US$85.9m, and it turned in a small operating loss of US$3.0m, versus US$113.2m profit in 2Q15.

But aided by a large tax credit of US$96.4m, reported NPAT came in at US$39.5m, +2.0%; however, excluding one-off items and forex losses, GAR estimates that core earnings would have jumped 279% to US$40m. For 1H16, revenue eased 4.4% to US$3235.4m, meeting 48% of our full-year forecast, while reported NPAT came in at US$133.6m, +1753.9%; but estimated core earnings of US$80m only met 38% of our FY16 estimate.

Outlook for the rest of 2016 is likely to remain challenging, with GAR expecting its operating performance to be affected by prices of CPO and competing seed oils, climatic conditions, and fluctuating FX rates. Production is likely to remain soft, albeit mitigated by higher CPO prices. We will have more after the analyst briefing. For now, we maintain HOLD but place our S$0.34 fair value under review.  

Source: OCBC Research - 12 Aug 2016