Golden Agri’s 2Q10 earnings of US$66m (+20% yoy, -25% qoq) missed consensus estimates by 20%, mainly due to lower CPO prodn arising from lower-than expected CPO yields & higher op expenses on higher CPO inventory & fertilizer costs. Expect prodn to pick up in 2H10 based on GGR selling the unsold 2Q CPO prodn and recovery in CPO yields. Mgmt is still guiding for 5-10% Y/Y prodn & sales growth, which implies a very strong 2H10 prodn & sales outlook.
CPO prices have also risen by ~20% in less than 2 mths, largely driven by the rally in oilseed & grain prices. GGR is trading at a 2010 P/E of 13.3x, which stacks up well against its Indonesian peer average of 17.5x. The favourable findings of the independent audit concerning deforestation allegations by Greenpeace should also lift the cloud over its share price. The stock remains MS top CPO upstream pick with TP of $0.75 while DB has a lower TP of $0.59.
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