Golden Agri

Golden Agri: 1H11 results above expectations.
Net profit rose 166% yoy to US$411m. Stripping out US$38m of forex gains, and US$9.6m gain on equity interest, core 1H11 net profit was US$373m, accounting for 62% of consensus estimates.
Goldman Sachs estimates that net profit could have been US$8m higher if not for an abnormal inventory build of about 17k tons of CPO not yet shipped, but which will contribute in subsequent quarters.

The improvement was mainly due to stronger-than-expected volume growth, as total CPO pdtn rose 32% to 1m ton, on the back of higher yield and mature acreage.
Improvement was also seen in the downstream segment with Indonesia's sales of branded cooking oil and margarine growing by 39% YoY.
During the period, CPO price increased by 50% YoY.
The group also benefitted from lower effective tax rate.

Mgt says CPO prices will likely remain around current levels (Msia CPO futures last traded at ~RM 3000/ton) in the coming months, as global demand will be sufficient to absorb surplus production from Indonesia and Msia. Notes supply tightness for other vegetable oils and increasing demand for palm oil by makers of oleochemicals and biodiesel will keep prices supported.
Mgt also expects the group’s palm oil production to rise by more than 10% in 2011 due to better yields. In 2010, the co produced 1.85m tons of palm oil.

Deutsche picks Golden Agri as its preferred upstream exposure due to the relatively stronger pdtn growth. Keeps Buy with TP $0.83.
Goldman reiterates Buy, raises TP to $0.87 from $0.85.