Golden Agri - Liquid High Beta Proxy To The Plantation Sector
- We expect Golden Agri to post core net earnings growth of above 100% in 2017, coming from a significant recovery in FFB output as well as continued margin improvements in its palm downstream and oilseeds divisions.
- Valuations remain undemanding. It is trading at a discount to the regional peer average, and is one of the more sensitive stocks to CPO price movements. Every MYR100/tonne in the CPO price change affects its earnings by 9-11%.
- Being one of the highest beta plantation stocks in Singapore would also bode well for it in times of market uncertainty.
Geographically diversified landbank.
- We like Golden Agri as we believe its more geographically diversified landbank would allow it to face challenges better in times of extreme weather.
- Meanwhile, its integrated operations – which encompass palm downstream operations as well as soybean crushing – could enable it to capture margins all across the industry spectrum.
- In addition, its valuation is inexpensive when compared to its peers.
Expect core net profit to more than double in 2017.
- Excluding the deferred tax income recognised in FY16, we expect the company to post an admirable >100% YoY jump in core net profit in 2017, on the back of:
- A significant recovery in FFB output of 12% YoY (lower than management’s target of 15-20%);
- Continued improvement in margins in its palm and laurics division on the back of higher prices and increased cost efficiencies;
- More consistent profits at its oilseeds division, given the current higher soybean prices.
Valuations at a discount to its peers.
- Our TP of SGD0.46 is based on 18x 2017F earnings and backed by an implied EV/ha of USD12,000/ha, i.e. on the lower end of its regional peers’ USD10,000-20,000/ha. Golden Agri’s current P/E of 15x for 2017F is below its regional peer average of 19x.
- Key risks include a reversal in crude palm oil and soybean price trends, weather abnormalities resulting in an oversupply or undersupply of vegetable oils, slower-than-expected implementation of biodiesel mandates and lower- than-expected demand for vegetable oils.
Still a BUY.
- We maintain our BUY recommendation on the stock. Golden Agri is highly sensitive to CPO price movements, where every MYR100/tonne change affects its earnings by 9-11% pa.
- Golden Agri is also one of Singapore’s highest beta plantation stocks, which would bode well for it in periods of market uncertainty.