Golden Agri’s 9MFY2022 core net profit of US$683 million exceeded expectations at 103% of the analysts’ full-year forecasts

Analysts at RHB Group Research has upgraded Golden Agri-Resources to “buy” with a higher target price of 33 cents from 30 cents previously following its 3QFY2022 ended September results announcement.

In its Nov 15 report, RHB notes that Golden Agri’s 9MFY2022 core net profit of US$683 million ($937 million) exceeded expectations at 103% of the analysts’ full-year forecasts. This is mainly due to the tax levy holiday, gains from forward hedges and lower effective tax rate. 

Golden Agri achieved an estimated net of tax crude palm oil (CPO) average selling price (ASP) of US$1,027 per tonne in 9MFY2022, 46% higher y-o-y. As for its downstream segment, the company managed to achieve a higher q-o-q EBITDA margin in 3QFY2022 despite the smaller tax differential between CPO and processed palm oil (PPO). This was likely due to hedging gains which were “significant”, according to the company.

“We understand Golden Agri hedges one 1 to 2-months of production 3 to 6-months forward, and would have benefitted from the tax levy holiday, as forward sales volumes contracted earlier during the high tax period were executed when levies were zeroised — thereby recording an additional gain. 

“However, now that taxes have been reinstated since mid-November, the opposite would apply, where losses could be booked instead. Margins in 3QFY2022 were also supported by higher sales volumes, which grew 34% q-o-q,” the analysts add.

Golden Agri’s 3QFY2022 saw an 18.9% y-o-y fresh fruit bunches (FFB) output rise, resulting in 9MFY2022 nucleus FFB rising by a light 1.3% y-o-y. This is a significant recovery from 1HFY2022’s 6.5% y-o-y decline. 

For FY2022, Golden Agri is now guiding for a slightly lower FFB growth of 3%, expecting 3QFY2022 to be the peak quarter. RHB has raised its FFB growth projections up to 3% for FY2022, while keeping its 3% growth for FY2023 and FY2024.

Golden Agri’s CPO inventory level at the end of June was 687,000 tonnes, which is about 1.5x more than its normal inventory levels of 400,000 to 500,000. The company expects to clear the excess inventory by end-4QFY2022.

RHB has raised its FY2022-FY2024 earning estimates by 6% to 26% after imputing the tax levy holiday’s impact, lower effective tax rates and higher contributions from downstream operations. 

As at 12.58pm, shares in Golden Agri are trading at an unchanged 28.5 cents.