• Golden Agri Resources (GGR) (UNRATED) has released its 4QFY23 results. GGR reported a core net profit of US$327.5mil for FY23, which was 31% below consensus estimates of US$474mil. GGR’s core net profit plunged by 64% in FY23 as average CPO price slid by 28% to US$767/tonne (RM3,501/tonne) and nucleus FFB production eased by 4%.

• GGR expects its FFB production to be flat in FY24F due to the replanting of ageing oil palm trees and lagged impact of El Nino at some of the estates. GGR is anticipated to re-plant 20,000ha of ageing oil palm trees in FY24F.

• We understand that South Kalimantan experienced 5-6 months of drought in 3Q2023. However, other areas in Kalimantan faced wet weather or floods.

• GGR’s capex is estimated at US$300mil in FY24F, with 37% allocated for upstream business and the balance 63% for the downstream unit. GGR plans to expand the capacity of its palm refinery in Marunda by 450,000 tonnes/year and oleochemical plant by 30,000 tonnes/year.

• Unlike other companies, GGR’s downstream operations did not experience a slowdown in demand in FY23. The group’s refineries and oleochemical plants operated close to full capacity in FY23.

• GGR’s cash cost of CPO production is expected to be unchanged at US$325/tonne (RM1,550/tonne) in FY24F. The group’s cash costs of production were US$342/tonne in 1HFY23 (RM1,526/tonne) and US$311/tonne (RM1,429/tonne) in 2HFY23.

• GGR is ready for EU’s deforestation regulation, which will be implemented at the end of this year, as 99% of GGR’s CPO and PK products are traceable to the source. GGR’s traceability system is based on block chain technology.

• GGR is currently trading at a FY24F PE of 5x, which is below its 2-year average of 6x.

Source: AmInvest Research - 29 Feb 2024