• Golden Agri-Resources (GGR) (UNRATED) released its 3QFY18 results yesterday. The group’s core net profit of US$79.0mil exceeded consensus estimates of US$75.9mil for the full year. GGR’s EBITDA fell by 27% YoY to US$370mil in 9MFY18 mainly due to a 13% decline in CPO price.

• We understand that the implementation of the B20 biodiesel programme in Indonesia is in full swing. Government agencies are monitoring to ensure that the various industries use the B20 biodiesel. The penalty for not using B20 is Rp60,000/litre. GGR thinks that in total, biodiesel usage in Indonesia will amount to 6mil kilolitres (5.2mil tonnes) in 2019F compared with 4mil kilolitres (3.5mil tonnes) in 2018E.

• GGR does not face a shortage of barges or vessels in delivering its biodiesel as its biodiesel plants are located close to the collection or blending points owned by Pertamina. We gather that to alleviate the problem of logistics, the government is planning to reduce the number of blending or collection points to eight. Currently, there are more than eight blending or collection points in the country.

• Pertamina has allocated a biodiesel production of 220,000 kilolitres (191,638 tonnes) to GGR for the period of May to December 2018. From November 2017 to April 2018, GGR’s biodiesel allocation was 108,000 kilolitres (97,077 tonnes). GGR’s biodiesel plants are currently operating at full capacity.

• GGR believes that the issue of a shortage of barges faced by upstream plantation companies in Kalimantan will be resolved by end-2018E or early 2019F. GGR reckons that its FFB production has already reached its highest level in 3QFY18. In contrast, another industry player in Indonesia has said that it would reach its highest FFB output in 4QFY18.

• GGR forecasts a FFB production growth of 5% in FY19F. The group expects its FFB output to increase by 10% in FY18E (9MFY18: 6%). GGR expects its FFB production in 4QFY18 to be higher than 4QFY17.

• Cash cost of CPO production is estimated to be below US$300/tonne (RM1,254/tonne) in FY18E. GGR’s cash cost of production was US$288/tonne (RM1,148/tonne) in 9MFY18 compared with US$296/tonne (RM1,288/tonne). Going forward, GGR’s cost of production may increase in FY19F as fertiliser costs are expected to be 15% higher.

Source: AmInvest Research - 14 Nov 2018