Boosted by downstream profits which saw 166% h-o-h jump in ebitda contributions, FY2022’s core earnings of US$1.008 billion ($1.35 billion) exceeded expectations at 120% and 132% of RHB’s and consensus’ bottomline. The higher contributions were driven by the tax levy holiday as well as strong fresh fruit bunches (FFB) growth.

The analysts note that Golden Agri expects downstream margins to normalise moving forward, as the tax levies have been reinstated. The company projects more normal margins of 4% to 6% in 2023.

“We keep our ebitda margin assumptions at 5%-6% for FY2023-FY2024,” the RHB analysts add.

Golden Agri’s upstream ebitda margin at 35.5% in FY2022 remained stable despite higher cost of production, OIR analysts highlight. Revenue for the plantation and palm oil mills rose 3.6% y-o-y to US$2.3 billion while ebitda was up 3.2% y-o-y to US$804 million in FY2022.

Although crude palm oil (CPO) prices normalised in 2HFY2022, the average CPO market price in 2022 was still 6.8% y-o-y higher. FFB production and palm output, meanwhile, increased 5% and 3% y-o-y.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/rhb-pegs-isoteams-tp-5-cents-after-rights-issuance?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>RHB pegs ISOTeam’s TP at 5 cents after rights issuance</a>

“Management expects flattish FFB production this year due to replanting activities and weather conditions. Cost of production is expected to increase by 5% y-o-y to about US$340 per tonne in 2023, due primarily to increased fertiliser prices which could taper in 2HFY2023,” OIR analysts add.

They believe that CPO prices could remain supported by tight global edible oil supply, improving consumption demand and increasing Indonesia's biodiesel blending mandate.

Although earnings will reduce y-o-y in FY2023, RHB believes valuations have already reflected this, as the stock is trading at an attractive 4.9x versus its peers of 5x-10x 2023 P/E.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/brokers-calls/dbs-raises-seas-tp-us78-indonesias-social-commerce-ban?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>DBS raises Sea’s TP to US$78 on Indonesia’s social commerce ban</a>

After imputing lower unit costs and FFB output projections, the analysts raise their FY2022-FY2024 earnings by 6%-9%.

As at 11.37am, shares in Golden Agri are trading 0.5 cents higher or 1.8% up at 28 cents.

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