May 16, 2017

Golden Agri-Resources reported its 1Q17 results yesterday evening, with revenue up 37% YoY to US$2.05b, meeting 27% of our full year forecast, driven by the Plantation segment.

Reported PATMI was 60% lower to US$37.6m, forming 18% of our FY17F estimate, but core PATMI grew 70% to US$83.6m. The key difference was due to a FX loss this quarter vs. a gain in 1Q16. EBITDA, which also excludes changes in fair value and FX, was up 29% to US$182.8m.

Revenue from Plantations segment grew 56% YoY to US$475m, and EBITDA was up 85% to US$141m on the back of strong production YoY. Management is keeping expectations for FY17 production to a 15-20% growth along with largely steady prices and cost of production. GAR expects to replant ~10k ha this year (focus on high-yielding planting) to reduce its age profile.

Palm and Laurics segment’s revenue was up 47% to US$1.85b but EBITDA was down 37% to US$39m due to higher CPO prices. Thus EBITDA margin was at 2.1% vs. 4.9% in 1Q16, against a backdrop of overcapacity in the industry. Management expects to maintain EBITDA margin in the 2-3% for the year via enhanced integration of its operations.

Given the current lack of weather extremities coupled with signs of weak global palm oil demand, OCBC Treasury Research remains bearish on palm oil and expects palm oil price of MYR2,650/MT at year end. We understand that demand is envisaged by management to pick up in 2H due to restocking by key markets such as China and India. Domestic consumption growth through the implementation of the biodiesel policy in Indonesia is also a source for uplift.

All considered, maintain HOLD with FV S$0.38. –OCBC

Golden Agri-Resources closed at: S$0.370