Golden Agri: its Jakarta-listed subsidiary PT SMART reported Rp 1159b net profit for 1H11, more than doubling the Rp 524b last yr. For 2Q alone, PT SMART made Rp 575b, -1.5% qoq.
PT SMART carries out Golden Agri’s downstream business covering refinery, cooking oil and oleochemicals as well as 109k ha of its nucleus planted area out of Golden Agri’s total nucleus planted hectarage of 352k ha.
Due to the decline in palm oil price in 2Q, earnings from PT SMART’s plantation segment plunged 31.8% qoq. But this was mitigated by its downstream earnings, which soared from Rp 47b in 1Q to Rp 160b in 2Q.
As Golden Agri itself is upstream-heavy, PT SMART’s plantation segment earnings suggest that there would be some decline in Golden Agri’s 2Q earnings, though this may be partially offset by contribution from its China business.
OSK retains FY11 net profit forecast of S$555.4m, but notes risk of upside surprise. Says, assuming the worst-case scenario whereby Golden Agri’s 2Q earnings fall by 31.8% qoq to mirror PT SMART’s upstream earnings decline, earnings will come in at $145.2m. Taking into account 1Q earnings, the co only needs to make another $197.3m in 2H to meet its forecast.
Recommends Golden Agri as the best stock to own to play the counter-trend rally in 2H, given its liquidity and leverage to CPO price. Keeps Buy and TP $0.89.
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