Background: Golden Agri‐Resources (GAR) is the largest Indonesian palm oil plantation company, with over 446,000ha of planted area and growing annually by around 8,000ha. It also has downstream operations in Indonesia and China. Most of its sales are derived ex‐plantations, with 48% of revenue coming from CPO sales, making it the purest CPO play.
Recent development: GAR continues to report good earnings, with 2Q11 earnings at US$180m, up 172% versus 2Q10. The counter continues to be heavily traded on the SGX, and was down 16% in the recent market sell‐off. With consensus forward PER of 10.2x, GAR looks attractive at the current levels.
Key ratios…
Price‐to‐earnings: 10.2x
Price‐to‐NTA: 1.2x
Dividend per share / yield: $0.0077 / 1.2%
Net cash/(debt) per share: US$0.066
Net debt as % of market cap: 12%
Share price S$0.62
Issued shares (m) 12,138.7
Market cap (S$m) 7,526.0
Free float (%) 51
Recent fundraising Nil
Financial YE 31 Dec
Major shareholders Widjaja family ‐ 49%
YTD change ‐22.5%
52‐wk price range S$0.535‐0.83
Our view
Earnings driven by volume. While its 2Q earnings were down sequentially by 22%, this is a result of lower average CPO market prices for the quarter, which fell by some 10%. However, volumes continued to pick up, with 650,000 tonnes of production versus 602,000 tonnes in 1Q11.
Yields on the mend. FFB yield has improved, with GAR now averaging 5.3% per quarter. The improvement in weather conditions has played a part, allowing better use of fertiliser. CPO extraction rate remains healthy at 23%, attesting to the quality of GAR’s crop.
Short‐term concerns aside, fundamentals still in place. GAR will benefit from CPO production volumes on the back of a higher planted area, and a favourable age profile for its planted area. While CPO prices continue to trend downwards for the moment, we expect them to stay firm in the longer term. A sharp collapse in CPO price in the current environment is unlikely, but the risk of a credit tightening may suck liquidity out of the commodities markets and in turn, depress prices.
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