Golden Agri sees itself in a good place to weather volatile palm oil prices

Singapore

PALM oil producers have enjoyed a lift in revenues and earnings so far this year, thanks to higher crude palm oil (CPO) prices. A correction in the commodity's prices could come as soon as the end of the year, but Golden Agri-Resources is confident that its low production costs and its exposure to both downstream and upstream segments put it in a good place.

CPO futures are up about 52 per cent year to date, and 65.8 per cent over the past one year. The higher prices helped push Golden Agri into the black for the first half of the year ended June, with a net profit of US$153.2 million versus a net loss of US$156.9 million in the year-ago period.

Revenue for the period rose 31.4 per cent to US$4.5 billion, from US$3.4 billion. Ebitda (earnings before interest, taxes, depreciation and amortisation) for the upstream segment rose to US$365 million from US$131.7 million in the year-ago period, while Ebitda for the downstream segment grew to US$158.4 million from US$58.2 million.

Its shares have similarly rebounded, rising 44.7 per cent year to date to close at S$0.23 on Monday.

In an interview with The Business Times, chief financial officer Rafael Concepcion said CPO prices are likely to remain volatile.

But he believed the company's low production cost - which he claimed is among the lowest in the industry - would provide "significant protection" against lower prices.

Golden Agri is also keeping close watch over its labour costs, which Mr Rafael said is one of the "major costs" in palm oil plantations.

The company has been increasing its long-term productivity through the use of higher yielding seeds. The group has also been implementing mechanisation, automation and digitalisation efforts that reduce the need for manual labour on its plantations.

"The main objective is to increase labour productivity and consistency in operations," said Mr Rafael.

Golden Agri is among the largest oil palm planters in Indonesia, with a total planted area of 536,900 hectares.

It also owns palm oil mills; and it processes and sells a variety of palm and oilseeds products. Besides palm, the company also has a presence in other edible oils such as soybean and sunflower oil, as well as other commodities such as sugar.

The diversified nature of its business helps shield Golden Agri from sharp fluctuations in oil palm prices, added Mr Rafael.

Mr Rafael also said logistical challenges that had initially "severely disrupted the industry's value chain" have progressively eased.

Although there are still bottlenecks at ports, he said freight costs for the company in H1 2021 were manageable.

Golden Agri's 56.3 per cent-owned subsidiary Gemini Edibles & Fats India is heading for a dual listing on both the Bombay Stock Exchange and National Stock Exchange of India.

A successful listing would raise some 7.5 billion rupees or about US$100 million for Golden Agri, which will be used primarily to improve the company's liquidity position and balance sheet.

"(The listing) will unlock the shareholders' value of our India subsidiary and will increase access to capital-raising opportunities for our India subsidiary," said Mr Rafael, adding that the company does not have plans to list its subsidiaries in other countries at the moment.