• 3Q16 EBITDA up 29%
• Net profit boosted by tax credit
• Keeping our view

3Q16 net profit helped by tax credit

Golden Agri-Resources reported its 3Q16 results yesterday evening, with revenue up 16.6% YoY to US$1.84b and PATMI was at US$219.7m vs. a net loss of US$16.4m in 3Q15. PATMI during the quarter brought 9M16 PATMI to US$353.3m, already exceeding consensus’ full year forecasts, due to a boost from the deferred tax income arising from the increase in tax depreciable value of its plantation assets.

The net tax impact from this revaluation of assets was US$111m during the quarter and US$242m for 9M16. For a clearer view on operational performance, EBITDA, which also excludes changes in fair value and FX, was up 29% to US$165.2m in 3Q16. For 9M16, EBITDA was slightly down 2% to S$393m, due to a muted 2Q16 showing. 9M16 revenue reached US$5.1b, meeting expectations.

Better margins from Palm and Laurics unit

Notably, revenue from Palm and Laurics segment was up 16% to US$1.6b in 3Q16, and EBITDA improved 64% to US$135m with EBITDA margin at 3.7% vs. 1.9% in 3Q15. The group was able to garner better margins during the quarter due to an environment of tight supply of refined products coupled with constant demand. While margins in 4Q should potentially come off as supply recovers, we can still expect better margins of ~3% for the year.

Possible recovery for CPO production in FY17

We will continue to see such tax benefits in 4Q16 following government approvals, while keeping in mind that this is a one-off item and will not be repeated in FY17. Noting a pickup for CPO production thus far for 4Q, the group has kept its expectations for a 15-20% decline in full year production. Looking ahead, management believes there could be a recovery in FY17 and production may possibly get back to levels seen in 2015. Following a change in analyst coverage, we adjust our estimates accordingly, and based on and based on 13.5x peg to FY17F EPS, our fair value is slightly higher at S$0.37 (previous S$0.34). Maintain HOLD.

Source: OCBC Research - 15 Nov 2016