Analysts are mixed on Golden Agri-Resources on the back of the ongoing Indonesia palm oil export ban and the possibility of crude palm oil (CPO) trending lower in 2HFY2022.

CGS-CIMB Research analysts Ivy Ng Lee Fang and Nagulan Ravi have downgraded their recommendation from “add” to “hold” due to concerns that the policy to control cooking oil prices in Indonesia would negatively impact profit margins for Golden Agri’s estates.

The analysts point out that Golden Agri is reducing the processing of third-party fruits following the export ban, and that it has enough storage capacity to store its own palm oil production. However, the possibility of a prolonged export ban is likely to impact Golden Agri’s cash flow and raise logistic costs.

“Golden Agri is hopeful that the export ban will be lifted soon and cited some expectations in market for the ban to be lifted as early as May 23, 2022. We lift our FY2022 EPS forecasts by 13% to reflect our recently revised higher CPO price assumptions but cut FY2023-FY2024 earnings on higher operating costs,” the CGS-CIMB analysts add, lowering their target price to 30 cents from the previous 33.5 cents.

Meanwhile, RHB Group Research analysts have maintained “neutral” on Golden Agri, with an unchanged target price of 30 cents. The analysts believe that the plantation player’s earnings should remain relatively healthy in 2022 due to elevated CPO prices.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/rhb-lowers-tp-ec-world-reit-light-banks-concerns-over-china-assets?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>RHB lowers TP for EC World REIT in light of banks’ concerns over China assets</a>

The RHB analysts highlight that Golden Agri achieved a CPO average selling price (ASP) of US$1,303 per tonne in 1QFY2022 — yet to see the impact of the export ban on its ASPs. Of the total sales volume, 30% is affected by the ban; about 20% is sold domestically; 25% is exported as value added products and hence not affected by the ban, while the remaining 25% involves sales made at its overseas operations.

The analysts raised their FY2022-FY2023 earnings estimates by 4%-22% after adjusting for higher CPO prices of RM5,300 per tonne for FY2022 and RM4,300 per tonne for FY2023. “As our CPO price assumptions are already lower than prevailing prices, we have not imputed any significant impact from the export ban on Golden Agri’s earnings, as we expect this ban to be short-lived,” they add.

OCBC Investment Research analyst Chu Peng who has a “hold” rating on Golden Agri points out that the company's cost of production rose 6.7% y-o-y to US$304 per tonne in 1QFY2022. This is mainly due to higher fertiliser cost.

“Golden Agri managed to procure fertiliser at prices which were 10% y-o-y higher for 1HFY2022 but has not procured its requirement for 2HFY2022. We could see fertiliser costs increase about 60% y-o-y for 2HFY2022. For 2022, cost of production is expected to rise 10%-15% y-o-y,” she says.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/brokers-calls/fx-markets-playing-game-two-halves-usd-depreciate-2h2022-dbs?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>FX markets playing 'a game of two halves', USD to depreciate in 2H2022: DBS</a>

After adjustments, OCBC’s fair value estimate decreases slightly to 30 cents, from 32 cents previously.

As at 9.25am, shares in Golden Agri are trading 0.5 cents lower or 1.786% down at 27.5 cents.

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