• Golden Agri Resources (GGR) (UNRATED) has released its 1HFY23 results. GGR’s annualised 1HFY23 net profit was within Bloomberg consensus.

• GGR’s net profit plunged by 53% YoY to US$182mil in 1HFY23. GGR’s nucleus FFB production slid by 9% YoY in 1HFY23 while average realised CPO price (net of export tax and levy) declined by 30% to US$789/tonne (RM3,521/tonne).

• GGR expects its FFB production to fall by 3% in FY23E. The group’s FFB production is expected to rebound in 2HFY23. Tree stress is envisaged to dissipate in 2HFY23. GGR attributed the poor productivity in 1HFY23 to tree stress, heavy rainfall in 1Q and replanting of ageing oil palm trees.

• GGR reckons that El Nino would be mild in 2HFY23. It would most probably take place at the end of the year. However, if a severe El Nino materialises, the impact on FFB production would only be felt in FY24F.

• GGR recorded a cash cost of US$342/tonne (RM1,526/tonne) in 1HFY23 vs. US$312/tonne (RM1,333/tonne) in 1HFY22. The higher cash cost pertonne in 1HFY23 was due to an increase in fertiliser costs. GGR expects its fertiliser costs to fall in 2HFY23. Hence, the group’s cash cost is envisaged to be US$320/tonne (RM1,472/tonne) in FY23E, the same as FY22.

• We understand that palm refining margins in Indonesia were under pressure in 1HFY23 due to weak selling prices and a reduction in the CPO export tax and levy. Also, refiners were competing to secure CPO from millers as supply was tight. We gather that demand for palm oil is sluggish currently as there are ample inventories of edible oils in China and India.

• GGR is well-prepared for EU’s implementation of deforestation regulation at the end of FY24F. About 100% of the group’s operations would be fully traceable by the end of FY23E. Currently, 98% of GGR’s supply chain is fully traceable to plantations.

• GGR is currently trading at a FY24F PE of 7x, which is higher than its 2-year average of 4x.

Source: AmInvest Research - 16 Aug 2023