• Golden Agri Resources (GGR) reported a 1QFY19 net profit of US$11.8mil yesterday, which was below consensus estimates of US$105.8mil for the full year. GGR’s revenue dropped by 11.0% YoY in 1QFY19 while its net profit fell by 52.5%.

• GGR expects its FFB production (nucleus and plasma) to grow by 4% in FY19F compared with 2% in 1QFY19. GGR anticipates a stronger FFB output in 2HFY19, which should make up for the meagre rise in 1QFY19.

• Although GGR’s nucleus FFB output slid by 1% YoY in 1QFY19, its plasma FFB production expanded by 13%. The growth in plasma FFB production in 1QFY19 was driven by east and south Kalimantan and south Sumatra.

• GGR believes that Indonesia would be implementing the B30 biodiesel policy in 2HFY19 instead of FY20F. We understand that the government may be implementing the policy when the preliminary results of the vehicle tests are released in July 2019. Final results of the tests are expected to be announced in October 2019.

• According to GGR, B30 would boost Indonesia’s biodiesel production from to 7.4mil KL (6.4mil tonnes) in 2019F 6.2mil KL (5.4mil tonnes). Also, the implementation of B30 is not anticipated to result in logistic issues as the delivery points for biodiesel have been reduced. Recall that there was a shortage of barges or vessels to transport CPO in Kalimantan in 2HFY18 as the barges were used to transport biodiesel instead.

• Currently, GGR has a biodiesel production capacity of 600,000 tonnes per year in Indonesia. Industry biodiesel production capacity is about 10mil tonnes per year. Average utilisation rate of GGR’s biodiesel plants is close to 100% currently.

• GGR recorded a cash CPO cost of US$309/tonne (RM1,264/tonne) in 1QFY19 vs. US$304/tonne (RM1,193/tonne) in 1QFY18. The YoY increase in the cost of production in 1QFY19 was due mainly to a 15% rise in fertiliser costs. GGR hopes to achieve a cost of production of US$300/tonne (RM1,251/tonne) in FY19F.

Source: AmInvest Research - 15 May 2019