Brokers’ take: RHB upgrades Golden Agri to ‘buy’ on lower tax rates

RHB has upgraded its call on Golden Agri-Resources to “buy” from “neutral”, raising its earnings estimates on lower effective tax rates and higher contributions from downstream operations.

This comes after Golden Agri posted earnings of US$285 million for its third quarter ended Sep 30, up 148 per cent from US$115 million a year ago.

Noting that the earnings were “well above” expectations, RHB said that the palm oil producer had benefited from a two-month tax levy holiday and strong fresh fruit bunches (FFBs) growth in Q3.

FFBs are the raw material from which palm oil is extracted.

The research house raised its target price for Golden Agri to S$0.33 from S$0.30 previously, and also raised its FY2022 earnings estimates to US$836 million from US$666 million.

Its analysts described the company’s valuation as “attractive” and “inexpensive”, with it trading at a price-to-equity (PE) multiple of 5.7 times for FY2023. This is on the lower end of its peers, which are trading at a PE multiple of between five and nine times for FY2023.

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They added that the competitiveness of Golden Agri’s downstream operations, which include the processing and sale of palm and other oilseed-based products, were a key driver for the company.

Looking ahead, RHB noted that Golden Agri will face taxes that were reinstated in mid-November, and could book losses on this as a result. However, its analysts predict that inventory drawdown amid stable costs will boost the company’s earnings in Q4.

As at 11.34 am on Tuesday (Nov 15), Golden Agri shares were trading flat at S$0.285.