RHB Bank Singapore has downgraded its call on Golden Agri-Resources E5H (GAR) from “buy” to “neutral” and lowered its target price from 30 cents to 29 cents, following the group’s full year results ended Dec 31, 2023.
RHB analysts say that the group’s FY2023 earnings disappointed. It was dragged down by a one-off tax expense in 4QFY2023 and higher-than-expected unit costs, which resulted in a core net profit for the year of US$284.3 million ($382.17 million).
GAR’s 4QFY2023 nucleus fresh fruit bunches (FFB) fell 12.1% q-o-q and rose 0.4% y-o-y, bringing FY2023 output down 4.5% y-o-y, lower than management’s growth guidance of -3% y-o-y, but in line with RHB’s projection of -5% y-o-y.
The group expects dry weather to impact 2HFY2023’s FFB output, and its projecting flat y-o-y FFB output growth in 2024.
For this reason, RHB has lowered their FFB growth to 0%-2% (from +2%) for FY2024-FY2025.
In addition, the analysts note that GAR’s unit costs fell 3% q-o-q but rose 24% y-o-y in 4QFY2023, bringing FY2023 costs to US$325/tonne (+0.6% y-o-y).
The group applied 100% of its annual fertiliser requirements in FY2023, and it is guiding for FY2024 unit costs to moderate slightly by 4%-5% y-o-y to about US$310/tonne, despite lower fertiliser tender prices of 30% for 1HFY2024 due to higher maintenance costs.
“We raise our cost assumptions accordingly,” say the analysts.
GAR’s crude palm oil (CPO) inventory level remained relatively high at end-4QFY2023, which the analysts say could have resulted in lower CPO sales volume. They expect this to be delivered in 1QFY2024.
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As GAR has a 100% utilisation rate for its downstream capacities, it says that it is expanding its refinery capacity by 450,000 tonnes in 2026 by focusing on differentiated consumer products.
After lowering FFB output and raising unit costs, RHB analysts have lowered their FY2024-FY2025 earnings by 12%-14%.
“We believe valuation is now fair, as the stock is trading at 8.2 times FY2024 P/E, which is at the higher-end of its peer range of 6-9 times,” say the analysts. Their lowered target price of 29 cents includes a 6% environmental, social and governance discount.
As at 11.11am, shares in Golden Agri-Resources are trading flat at 27 cents.
