Golden Agri

Golden Agri: 2Q13 results significantly below street expectations. While revenue rose 25% y/y and 18% q/q to US$1.68b, net profit slumped 58% y/y and 60% q/q to US$45.3m. This was mainly driven by weaker production coupled with higher plantation costs. HSBC notes the group continues to struggle with costs, with increased sourcing from low margin third parties partly to blame, as the group responded to increased demand, especially with new refining capacity coming online. Adds, more worrying are the increases in fertiliser application and labor costs. Going forward, the house notes visibility of a turnaround in costs is poor, and downside risks exist to a recovery in output. Recalls that Golden Agri in 2H12, suffered as it tried to respond to tree-stress conditions, and these issues have yet to be fully resolved. HSBC downgrades to Neutral from overweight, cuts TP to $0.59 from $0.69. Deutsche maintains Sell with TP $0.50, notes risks remain on the downside on expectations of CPO prices remaining depressed. CIMB maintains at Neutral with TP $0.56.