• Golden Agri Resources (GGR) reported its 1QFY18 results yesterday, which fell short of consensus estimates. GGR’s core net profit fell by 70% YoY to US$25mil in 1QFY18 as revenue dropped by 11%.

• Average CPO price realised slid by 12% YoY to US$645/tonne (RM2,531/tonne) in 1QFY18 while FFB nucleus production shrank by 11% YoY.

• GGR attributed the YoY drop in its FFB production in 1QFY18 to poor yields in South Kalimantan and Sumatra. The group’s FFB output in South Kalimantan declined by 30% YoY in 1QFY18 while in Sumatra, FFB production fell by 39%.

• In spite of the weak output in 1QFY18, GGR is optimistic that it would be able to achieve an FFB production growth of 5% to 10% in FY18F. The group’s FFB output has picked up in 2QFY18. Peak production is expected to take place in either 3QFY18 or 4QFY18. In terms of weather, we understand that rainfall is sufficient.

• GGR has received a biodiesel allocation of 112,000 kilolitres (97,561 tonnes) from Pertamina in Indonesia for the months of May to October 2018. GGR’s allocation was 108,000 kilolitres (94,078 tonnes) for the period of November 2017 to April 2018. GGR is confident that the Indonesia government would achieve its biodiesel consumption target of 3.5mil kilolitres (3.05mil tonnes) in 2018F (2017: 2.54mil kilolitres).

• GGR intends to replant about 15,000ha of ageing oil palm trees in FY18F. The replanting cost is about US$4,000/ha until maturity. GGR plans to accelerate its replanting programme in the coming years. However for now, the replanting size of 15,000ha is sufficient.

• GGR clarified that its investment in financial assets of US$101.4mil in 1QFY18 were mainly in respect of East Ventures Fund and Yahoo Japan. The latter two will invest in technology companies on behalf of GGR. GGR believes that finding digital solutions or use of technology is the way forward towards lowering its cost structure and improving yields in the palm oil industry.

Source: AmInvest Research - 16 May 2018