AmWatch - Plantation Sector : Key Takeaways from Golden Agri’s Conference Call NEUTRAL, 15 Aug 2014

SECTOR FOCUS OF THE DAY

Plantation Sector : Key Takeaways from Golden Agri’s Conference Call   NEUTRAL

Golden Agri Resources (GGR) (S$0.53, UNRATED) held a conference call on its 2QFY14 results yesterday. The group’s results fell short of street estimates. GGR recorded a net profit decline of 17.1% YoY in 1HFY14 in spite of a 27% increase in revenue.

The 5.7% YoY fall in GGR’s EBITDA in 1HFY14 was due to weaker palm refining margin in Indonesia and losses in the oilseeds division (mainly soybean crushing) in China. GGR is reviewing its operations in China. The group does not exclude the possibility that the assets in China may be sold off. In the mean time, GGR had reduced the utilisation rate of its soybean crushing plants in China to manage operating costs. Presently, the average utilisation rate is 50%. For now, GGR is unable to say with certainty if soybean crushing margins will improve in 2HFY14.

GGR believes that refining margins in Indonesia will recover eventually. Supply of CPO in the country is expected to rise in 2HFY14, easing the tight conditions experienced in 1HFY14. However, this is expected to be offset by new refineries coming on-stream in the country in 2HFY14. GGR’s refining capacity is anticipated to increase by 1.2mil tonnes by end-FY14F. This would bring the group’s total refining capacity to 3.5mil tonnes per year. GGR recorded a production cost of US$295/tonne (RM964/tonne) in 1HFY14 versus US$352/tonne (RM1,082/tonne) in 1HFY13. The group expects to achieve a production cost per tonne of US$300/tonne (RM960/tonne) for FY14F.

GGR’s FFB production is expected to climb by 10% in FY14F. In 1HFY14, the group chalked up a 15% expansion in FFB output underpinned by the young oil palm trees in Kalimantan and a recovery in FFB yields in Sumatra. Finally, GGR has entered into a joint venture with CEPSA to build a fatty alcohol plant in Dumai in FY15F. The production capacity of the plant is expected to be 200,000 tonnes per year.

Others :

Genting Singapore  : Hit by higher impairment loss on debtors    BUY

Media Prima : Disappointments due to weak sentiment                HOLD

Malaysia Building Society : Further inroads in the corporate loans segment           HOLD

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