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Brokers' Take01/03/11

ABOVE forecast maintain Trading Buy: FY10 core net profit (excluding biological assets and forex gains) of US$387 million is 6 per cent above our forecast and 9 per cent above consensus on higher CPO selling prices achieved.

Published March 1, 2011

Brokers' Take

Golden Agri-Resources
Feb 28 close: $0.65
CIMB, Feb 28

ABOVE forecast maintain Trading Buy: FY10 core net profit (excluding biological assets and forex gains) of US$387 million is 6 per cent above our forecast and 9 per cent above consensus on higher CPO selling prices achieved.

Reported net profit of US$1.42 billion is much higher than our forecast as it includes a US$1.37 billion gain in biological assets. A final dividend of 0.77 cent also surprised, beating our estimate of 0.6 cent.

We are keeping our expectation of a 36 per cent jump in core net profit for FY11 on the back of stronger selling prices and output. Also intact is our target price of $0.85, at 16x forward P/E (10 per cent premium to market target).

We also introduce FY13 forecasts. We continue to rate Golden Agri a Trading Buy in view of its attractive valuations versus peers and strong fresh fruit bunches (FFB) output growth prospects, which should provide stock catalysts.

Better prices and output: Q4 FY10 core net profit jumped 125 per cent y-o-y and 43 per cent q-o-q to a record quarterly US$146 million on higher selling prices and FFB production. FFB output from its nucleus estates grew 13 per cent y-o-y and 18 per cent q-o-q to 1.8 million tonnes, in line with estimates.

ASP achieved for CPO improved 43 per cent y-o-y to US$924 a tonne to beat our estimate, lifting full-year ASP to US$816. Biological asset gains stemmed mainly from the adoption of a higher CPO price assumption of US$775/tonne against US$712 previously, when valuing its plantation estates.

Record year: FY10 core net profit of US$387 million beat its previous high of US$377 million in FY08. This was achieved on the back of higher selling prices for its palm products, lower fertiliser costs, and maiden contributions from its China food business.

The group said it remains positive on production and selling prices in FY11. Barring weather eccentricities, it expects FFB output to grow 5-10 per cent with operating costs remaining fairly manageable.

It has toned down its new planting targets to 20,000-30,000 hectares and plans to expand its downstream capacities more aggressively. The group also does not discount venturing into other crops and new markets.

It highlights its commitment to the development of palm oil on a sustainable basis and recently collaborated with The Forest Trust. Capex plan for FY11 is US$450 million.
TRADING BUY