Golden Agri

Golden Agri: 3Q13 net profit of $30m (-65% y/y, -33% q/q) came in significantly below street expectations, driven by weak palm oil prices and lower production. While the lower palm oil prices (-19% y/y) were expected, the scale of production declines was not. CPO output fell 13% y-o-y, accelerating the negative momentum set in 2Q13. Management claims significant tree stress is impacting output. Nevertheless, measures to turn around this situation – such as increasing fertiliser application in the past few quarters – have yet to show any results. Meanwhile, cost pressures from labour and fertiliser continue to dog GGR so far in FY13. GGR’s 3Q13 CPO inventory level climbed 29% QoQ to 442,000 MT. Mgmt now expects a 5% YoY decline in CPO production (vs +5% previously) in 2013 due to biological tree stress of oil palm trees but maintains its guidance of 5-10% production growth for 2014. The street expresses concern over the lack of clarity on the new land regulations in Indonesia as an overhang on GGR’s expansion plans. An interim div of 0.585cts was declared, representing 30% of payout for 9M13, in line with the dividend policy. Net gearing of 20% increased from 14% at end 2012. Deutsche keeps at Sell with TP $0.50, says valuations at 16x FY13e P/E are ahead of its 5yr historical avg of 14x. HSBC downgrades to Underweight from neutral, lowers TP to $0.55 (from $0.58). Nomura maintains Neutral with TP $0.63. Credit Suisse maintains Outperform with TP $0.66 (from $0.67), mainly as a high beta play on palm oil prices.