Higher palm oil demand, tight supply boost Golden Agri's optimism for rest of the year

Singapore

PALM oil plantation owner Golden Agri-Resources is positive on the outlook for the rest of the year amid favourable demand and supply dynamics.

In a call to discuss the company's financial results for the first half of the year ended June, the group's director for investor relations Richard Fung said that on one hand, demand for crude palm oil (CPO) has been stoked by countries recovering from the brunt of the Covid-19 pandemic and the resumption of economic activity. On the other hand, supply has been kept tight due to dry weather conditions in producing countries such as Indonesia and Malaysia.

This in turn boosted benchmark palm oil prices. The international CPO (FOB Belawan) price during H1 was US$1,088 per tonne, some 77 per cent higher than the price in the corresponding period last year.

Mr Fung remains optimistic about the outlook of the palm oil industry: "The long-term outlook of the industry continues to be positive given palm oil's competitive advantages in serving a growing population as well as the increasing incomes per capita (segments)," he said.

For the first half of the year ended June, Golden Agri reported net profit of US$153.2 million, reversing from 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 due primarily to a recovery in palm product output and sustained strong crude palm oil (CPO) prices during the year.

Golden Agri declared an interim dividend of 0.528 Singapore cent per share.

Higher CPO prices also lifted the earnings of both Golden Agri's upstream and downstream segments.

Ebitda (earnings before interest, taxes, depreciation and amortisation) for Golden Agri's upstream segment - which consists of plantations and palm oil mills - grew to US$365 million from US$131.7 million in the year-ago period.

Production of fresh fruit bunches rose 27 per cent year on year to 5.2 million tonnes, from 4.1 million tonnes in view of the favourable weather conditions.

But Golden Agri took a hit from Indonesia's new export tax and levy scheme that was implemented at the end of 2020. The net CPO price for H1 after this levy came in stood at US$722 per tonne, up 29.2 per cent from US$559 in the year-ago period.

Looking ahead, Mr Fung expects the full-year's production figures to see a "healthy growth" of about 12 per cent from last year. The production yield is likely to taper off slightly in H2. Golden Agri's production growth in the second quarter was strong, and the group also booked high production growth in the fourth quarter last year.

Meanwhile the downstream segment, which constitutes all processing and merchandising of palm and oilseeds products, oleochemicals and other vegetable oils, reported Ebitda of US$158.4 million, up from US$58.2 million last year. The increase was attributed primarily to higher average selling prices.

In order to capitalise on higher CPO prices, Mr Fung said Golden Agri will focus on replanting and technological innovation to ensure continued long-term production growth. The use of next-generation higher-yielding seeds and mechanisation techniques on plantations will help boost yields, he added.

For FY2021, Golden Agri has earmarked US$150 million for capital expenditure. This amount is mainly for replanting, expansion of biodiesel capacity, and the enhancement of capabilities to produce higher value products. Golden Agri has spent US$66 million of this so far this year, and expects to stay "within budget" in H2.

The company is also expecting to pocket 7.5 billion rupees or about US$100 million from the initial public offering of its 56.3 per cent-owned subsidiary Gemini Edibles & Fats India in a dual listing on both the Bombay Stock Exchange and National Stock Exchange of India.

These proceeds will be used primarily to improve Golden Agri's liquidity position and its balance sheet, said Mr Fung. No mergers and acquisitions are in the pipelines for now, he added.

Shares in Golden Agri closed on Friday at 24 Singapore cents, up 2.1 per cent or 0.5 cent.