• Golden Agri Resources (GAR) (UNRATED) has reported its 1HFY21 results. GAR registered a net profit of US$153mil in 1HFY21, which was above consensus estimates of US$262.5mil for the full year. GAR swung to a profit of US$153mil in 1HFY21 from a net loss of US$157mil in 1HFY20 mainly on the back of robust palm product prices.

• GAR realised an average CPO price of US$1,088/tonne (RM4,459/tonne) in 1HFY21 vs. US$616/tonne (RM2,618/tonne) in 1HFY20. FFB nucleus production growth was 26.0% YoY in 1HFY21. Excluding acquisitions, GAR’s FFB nucleus output growth would still have been strong at 24% YoY in 1HFY21.

• In spite of the healthy production growth in 1HFY21, GAR expects to achieve only a 12% increase in FFB output in FY21E. GAR does not expect the traditional seasonal production pattern to prevail in 2HFY21. GAR opines that in FY21E, 2H would account for 50% of full-year FFB output instead of the usual 55% to 60%. Weather conditions were favourable in 1HFY21.

• Covid-19 mobility restrictions have not affected GAR’s operations or logistics significantly. The group has not faced issues with fertiliser delivery or application. GAR applied about 30% to 40% of the full year’s fertiliser requirements in 1HFY21, which was the same as FY20.

• GAR’s cash cost is expected to be unchanged at US$300/tonne (RM1,266/tonne) in FY21E. The group’s cash cost was US$291/tonne (RM1,193/tonne) in 1HFY21 vs. US$308/tonne (RM1,309/tonne) in 1HFY20. Although costs of fertiliser and wages are envisaged to increase in FY21E, these would be compensated by a higher volume of CPO production.

• GAR plans to expand its annual biodiesel production capacity by 450,000 tonnes going forward. Upon completion of the biodiesel plant in FY22F, GAR’s biodiesel production capacity would increase to about 1.05mil tonnes per year from 600,000 tonnes per year presently. The cost of the new biodiesel plant is about US$60mil.

• In respect of ESG issues, GAR believes that the current certification standards are already strict enough. Hence, the issue should not be strengthening the RSPO principles and criteria. Instead, palm oil companies should look at adjustments to the processes of auditing and assurances. GAR also reckons that many ESG issues are legacy issues, which have already been reported by the media. Hence, there needs to be transparency in the industry through disclosure of data and reports.

Source: AmInvest Research - 16 Aug 2021