TRADING BUY
Fair Value SGD0.89
Previous SGD0.89
Price SGD0.73
THE BUZZ
Golden Agri’s Jakarta-listed subsidiary PT SMART reported a IDR1,159.2bn net profit for 1HFY11, more than doubling the IDR523.7bn posted in 1HFY10. For 2Q alone, PT SMART made IDR575.1bn, which was down by 1.5% sequentially.
OUR TAKE
PT SMART carries out Golden Agri’s downstream business covering refinery, cooking oil and oleochemicals as well as 108,589 ha of its nucleus planted area out of Golden Agri’s total nucleus planted hectarage of 352,124 ha.
Due to the decline in palm oil price in 2Q, earnings from PT SMART’s plantation segment plunged 31.8% q-o-q. This was however mitigated by its downstream earnings, which soared from IDR47.4bn in 1Q to IDR160.1bn in 2Q. As Golden Agri itself is upstream-heavy, PT SMART’s plantation segment earnings suggest that there would be some decline in Golden Agri’s 2Q earnings. We believe this would be mild due to contribution from its China business.
Our net profit forecast for FY11 stands at SGD555.4m. Assuming the worst-case scenario whereby Golden Agri’s 2Q earnings fall by 31.8% q-o-q to mirror PT SMART’s upstream earnings decline, its earnings will come in at SGD145.2m. For 1H, it would have totaled SGD358.1m, which means that the company only needs to make another SGD197.3m in 2H to meet our forecast. Given this scenario, we are likely to raise our forecasts pending the 2Q results in view of our expectation of a counter-trend rally in CPO price in 2H.
Maintain Buy with fair value of SGD0.89. Golden Agri is easily the best stock to own to play the counter-trend rally given its liquidity and leverage to CPO price.
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