We  trim  our  TP  for  Golden  Agri  to  SGD0.57  from  SGD0.64  while maintaining our BUY  call on the stock. Our CPO price assumption has been reduced to MYR2,400/MYR2,500 per tonne for CY14/CY15.  Golden Agri  is going through a rough patch at the moment,  particularly due tothe  negative  crush  margin  in  China. 2015  should  prove  to  be a  better year for the industry.  

Cutting  CPO  price  assumption.  We  have  cut  our  CPO  price assumption for CY14 to MYR2,400 per tonne from MYR2,700. Our CY15 assumption drops  to MYR2,500 from MYR2,900 previously.  As a result of that, our earnings forecast has been cut by 12.4% to USD319m for CY14 and by 10.2% to USD369m for CY15.  

Palm oil prices close to bottom. We believe palm oil prices are weeks away from a bottom and should strengthen in the 4Q as well as in CY15. That said, the current low levels would  pull down  the full-year average, hence the cut in our assumptions.  

TP drops  to SGD0.57.  Based on the lowered earnings forecast, Golden Agri  is trading at 16x CY14 and 14x  CY15 earnings. Our TP,  based on 16x CY15 EPS, declines to SGD0.57.  

Some upside from acquisition.  Management believes it will complete the acquisition of 16k ha of nucleus planted area in the 2H, which will boost its planted area by 4.3%. While the impact on 2014 earnings would be minimal, this  should provide some lift to 2015 earnings.  We have not factored this into our earnings forecast. On the other hand, management has  also indicated  it  may step  up  replanting  activity  as  the  opportunity cost is lowest during the low CPO price environment.  

Current  rough  patch.  Golden  Agri  is  currently  going  through  a  rough patch  for  its  China  business due  to  the  negative  crush margin  but  will likely endure it over  disposing of the business due to the need to be in China  for  the  long  term.  For  its  palm  oil  downstream  business, management expects its  efforts in market development to start showing results in 2015.

 

Source: OSK-DMG