We downgrade Golden Agri to NEUTRAL from Buy, after slashing our earnings  forecast  -  which  also  resulted in our new TP  offering a 1.6% downside from its current trading price. The company delivered another quarter of disappointing results as  its  refining margin continued to be poor and its oilseed business incurred further losses.  Although there is some improvement in crushing margin, visibility remains poor.  

Another  poor  quarter.  Golden  Agri's  performance  deteriorated  further with  core  earnings  falling  by  46.7%  QoQ  due  to  weakness  across  all operating  segments.  Lower  palm  oil  prices  in  the  quarter,  poorer downstream margins and a still-lossmaking oilseed segment resulted in the earnings weakness. There was also an increase in inventory during the quarter by about 100k tonnes, which carried an unrealised profit of some USD12m. Core earnings for the 9M period only made up 55% of our full-year forecast.  

Decreasing our earnings forecast.  We slash our earnings forecast for FY14 to  USD198m  from  USD319m previously, and also cut our FY15F earnings to USD323m vs  USD369m previously. We factored in  a thinner refining margin and a loss of USD81m for the oilseed segment   for  our FY14 estimate.  

Upstream  maintained.  No  changes  to  our  assumptions  for  Golden Agri's  plantation  upstream  business.  Our  assumptions  are  sufficiently conservative  in light of the current dry weather   in Kalimantan,  whereby management  indicated  that  about  half  of  its  total  estates  have  beenaffected.  

Downgrade  to  NEUTRAL.  As  we  cut  our  estimates,  our  TP  slips  to SGD0.51 from SGD0.57, which offers no upside from its current levels. As  such,  we  downgrade  our  recommendation  to  NEUTRAL  from  Buy.Although we expect palm oil prices  to strengthen from now to Feb/Mar 2015, Golden Agri's stock price may lag given the drag from oilseed and palm oil downstream. There will  also be an impairment on its  biological assets in 4Q, as the palm oil ASP used in its biological asset valuation is at USD960/tonne vs the prevailing palm oil price of c.USD700/tonne.

Source: OSK-DMG