• Golden Agri Resources (GAR, UNRATED) has released its 3QFY19 results. The group reported a core net loss of US$12.1mil in 9MFY19, which was below consensus estimates of a core net profit of US$15.4mil for the full year. GAR swung into a net loss in in 9MFY19 largely due to an 18% slide in average CPO price realised and 7% drop in FFB nucleus production.

• GAR’s FFB production is expected to decline by 3% in FY19E vs. its previous guidance of zero growth. For FY20F, GAR’s FFB output is envisaged to inch down by 3%. In contrast to this, GAR reckons that industry CPO production in Indonesia would grow by 2% in 2020F. GAR believes that its FFB production in 4QFY19 would be weaker than 3QFY19’sbut stronger than that in 4QFY18. GAR’s FFB achieved its highest monthly level of production in October 2019.

• Weather conditions at GAR’s oil palm estates are back to normal after the dry conditions from August to October 2019. Most areas experienced drought except for North Sumatra and South Kalimantan.

• GAR’s biodiesel plants in Jakarta and Kalimantan are operating close to an average utilisation rate of 100%. The group plans to increase its biodiesel production capacity to 900,000 tonnes from 600,000 tonnes per year. The cost of the new biodiesel plant, which may be located in Kalimantan, is estimated to be US$50mil. Construction of the new biodiesel plant may start in FY20F.

• About 70% of GAR’s biodiesel were sold domestically for the country’s B20 biodiesel policy in 9MFY19 while the balance 30% were exported mainly to China. EBIT margin for the biodiesel, which was sold domestically, is about 6% to 7%.

• GAR has received its biodiesel allocation from Pertamina for FY20F. GAR would be selling 780,000 KL (679,443 tonnes) of biodiesel to Pertamina in FY20F compared with 554,000 KL (482,578 tonnes) in FY19E. GAR plans to increase the number of working hours and days at its biodiesel plants to be able to meet Pertamina’s allocation in FY20F.

• We understand that there are sufficient funds in Indonesia’s Estate Crop Fund to subsidise Indonesia’s B30 biodiesel policy. GAR estimates that there are about US$2bil in the fund. In any case if there are insufficient funds, the Indonesia government will impose the CPO export levy of US$50/tonne again.

• GAR achieved a cost of production of US$305/tonne (RM1,261/tonne) in 9MFY19 and US$294/tonne (RM1,224/tonne) in 3QFY19. The group hopes to achieve a cost of production of US$300/tonne in FY19E. Fertiliser costs are expected to be flat in FY20F. GAR applied 60% to 70% of its full-year fertiliser requirements in 9MFY19. GAR hopes to complete its full-year manuring programme in 4QFY19.

Source: AmInvest Research - 15 Nov 2019