SINGAPORE (Mar 3): Analysts expect better times ahead for Golden Agri-Resources, after the Indonesia-based palm oil plantation company posted strong growth in 4QFY2019 ended December.

Golden Agri saw its 4QFY2019 earnings treble to US$239.6 million ($333.0 million), bringing full-year earnings out of the red.

Earnings for FY2019 came in at US$194.0 million, compared to losses of US$1.8 million in FY2018.

While supported by strengthening palm oil prices during the latest quarter, the stellar 4QFY2019 was mainly boosted by a net fair value gain of financial assets of US$214 million.

Excluding the one-offs, Golden Agri recorded a core net profit of US$21.6 million for 4QFY2019 – reversing from six straight quarters of core net losses.

The improved quarterly performance came on the back of higher crude palm oil (CPO) price, reduction of palm inventory and better downstream contribution.

“[Golden Agri] returned to profit in 4QFY2019 from a loss of US$9.2 million in 3QFY2019, thanks mainly to higher crude palm oil (CPO) price, reduction of palm inventory and better downstream contribution,” says CGS-CIMB Research lead analyst Ivy Ng Lee Fang in a Mar 2 report.

The brokerage is upgrading its recommendation for Golden Agri to “hold”, from “reduce” previously, while trimming its target price slightly.

“We see share price support from its net book value per share of 49 cents as at end-2019,” says Ng, noting that its share price has decline 21.5% over the past 12 months.

“However, our SOP-based target price falls to 21 cents as we raise the discount rate to 20% from 10% to reflect concerns over its ageing estates,” she says.

Ng notes that Golden Agri has cut its fresh fruit bunch (FFB) output from its nucleus estates to be flat in 2020, compared to its previous guidance of a 3% growth.

“The group replanted 17,200ha of its estates in 2019 and is targeting to replant 20,000ha for 2020,” Ng adds.

Meanwhile, RHB Group Research expects Golden Agri remain in the black from here on, on the back of better CPO prices.

However, the brokerage notes that Golden Agri’s core earnings turnaround in 4QFY2019, while better than its own expectations, was below consensus estimates.

RHB is keeping its “buy” call on Golden Agri, with a slightly lower target price of 25 cents.

“We pare down our FY2020-2021 forecasts by 3-7% after updating for the lower FFB output growth,” says RHB’s Singapore research team.

As at 1pm, shares in Golden Agri are trading half a cent lower, or down 2.4%, at 20 cents. Year-to-date, the counter has fallen 14.9%.

According to CGS-CIMB valuations, Golden Agri is trading at a forward core price-to-earnings (P/E) of 27.6 times, a price-to-book value (P/BV) of 0.4 times, and a dividend yield of 2.4% for FY2020F.