Brokers' take: CGS-CIMB upgrades Golden Agri to 'hold' on CPO price strength

CGS-CIMB has upgraded its call on Golden Agri-Resources E5H : E5H 0%to "hold" from "reduce" on expectations that the company's share price will be supported by firm crude palm oil (CPO) prices as well as its proposed listing of its 56.3 per cent-owned subsidiary, Gemini Edibles & Fats India (GEF).

The research house maintains its S$0.25 price target which is still based on a 20 per cent discount to its estimated sum-of-parts value, despite raising earnings per share forecasts to reflect higher CPO prices and downstream profit margins.

In a report dated Monday, CGS-CIMB analysts highlighted Golden Agri's plantation division as the key earnings driver for H1 FY2021 as the group's fresh fruit bunches (FFB) output grew 24 per cent year-on-year.

"The key surprise in H1 FY2021 was stronger-than-expected fresh fruit bunches (FFB) output, due partly to the acquisition of new estates and improved yields from its estates that were hit by drought last year," they noted.

"Its downstream business also did well… We gathered that this was due to the rising CPO price as well as a favourable export levy structure. Golden Agri explained that the lower sales volumes were due to timing of delivery, resulting in higher inventory at the end of June 2021," added the analysts.

RHB Research remains "neutral" on the stock with a higher price target of S$0.24 compared to S$0.22 previously after raising its forecasts by 2 to 3 per cent for FY2022 to FY2033, respectively.

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In a separate report issued Monday, the research team said it believes Golden Agri's valuations are presently fair as it expects environmental, social and governance (ESG) issues to dampen industry valuations for the time being.

The team also thinks Golden Agri's close correlation with, and high sensitivity to, CPO prices are "likely to hamper its share price performance in the medium term".

While RHB estimates that the group's listing of GEF in India could add some S$0.04 to S$0.06 per share to the Golden Agri's fair value, it highlighted that the company may no longer be able to consolidate GEF's earnings after it goes public.

"We note that contributions from GEF have been on a rising trend, recording US$60 million net profit in 2020 from USS36 million in 2019," said the team.

Shares of Golden Agri ended Tuesday flat at 24 Singapore cents.

READ MORE: 

• Golden Agri-Resources swings to black in H1 2021 on palm product output recovery

• Golden Agri-Resources' India IPO has possible growth potential

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