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CGS-CIMB upgrades Golden Agri-Resources to 'hold', RHB maintains 'neutral' on the back of higher CPO prices

Khairani Afifi Noordin
Khairani Afifi Noordin8/17/2021 01:23 PM GMT+08  • 2 min read
CGS-CIMB upgrades Golden Agri-Resources to 'hold', RHB maintains 'neutral' on the back of higher CPO prices
Firm CPO prices is expected to support Golden Agri’s 2H21 upstream earnings, amid weaker downstream profit.
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CGS-CIMB Research analyst Ivy Ng has upgraded Golden-Agri Resources to “hold” from “reduce” on the back of firm crude palm oil (CPO) prices as well as the proposed listing of the plantation player’s subsidiary, Gemini Edibles & Fats India.

In an August 16 report, Ng said CGS-CIMB expects the strong CPO prices to support Golden Agri’s 2H21 upstream earnings, amid weaker downstream profit.

Golden Agri reported a 311% y-o-y improvement in EBITDA to US$479 million in 1H21, driven mainly by higher net CPO prices and production.

The key surprise, Ng said, was the stronger fresh fruit bunches (FFB) output, partly due to the acquisition of new estates and improved yields from the estates that were hit by drought last year.

Excluding its newly acquired estates of 34k ha, the group’s FFB output grew 24% yoy in 1H21, resulting in a 29% decline in its CPO production costs.

See also: Golden Agri-Resources moots share sale worth US$100 mil via India subsidiary's IPO

In a separate report, RHB analysts pointed out that Golden Agri booked a unit cost of US$291 per tonne in 1HFY21, a 6% decrease y-o-y. Golden Agri expects costs to remain close to US$300 per tonne in 2021, anticipating increasing output.

RHB analysts maintain “neutral” on Golden Agri, increasing its forecast by 2% to 3% for FY21 to FY23. It added that valuations are fair at present, as ESG concerns keep the industry valuations dampened.

In the medium term, Golden Agri’s close correlation and high sensitivity to CPO prices are likely to hamper its share price performance, RHB added in its report.

Golden Agri’s 56.27% owned subsidiary Gemini has initiated the process for its proposed listing on the BSE and National Stock Exchange of India. RHB highlighted that Gemini’s listing could add 4 cents to 6 cents per share to its share price, assuming no dilution and at a price to earnings ratio of 20 times.

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CGS-CIMB maintains its target price of 25 cents, while RHB maintains its target price of 24 cents.

​​As at 1.15 pm, Golden Agri’s shares were up 0.05 cent to 24.5 cents.

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