Golden Agri-Resources (GAR) reported its 2Q10 results yesterday. Revenue climbed 28.4% YoY to US$726.2m. Net profit also showed a 19.9% rise to US$66.0m, but fell 25.4% QoQ due to higher fertilizer cost from increased volume applied in 2Q10.
One reason for the shortfall was due to higher export taxes paid (US$26m in 1H10 versus US$3m in 1H09). We understand that GAR also had to incur slightly higher freight costs (US$28m in 1H10 versus US$17m in 1H09) as it is now shipping to more destinations.
Lower production growth. While total production (including palm kernel) showed a seasonal 12% pick up from the previous quarter, overall production was down 13% from the year-ago quarter; management notes that the trees are still experiencing a biological slowdown after a peak crop in 2H09. While GAR now expects to see up to 5% increase in production this year, it admits that the increase will mainly come from its increased acreage and yields could continue to remain relatively low in light of the uncertain weather conditions.
Easing fair value to S$0.655. This drops our fair value from S$0.72 to S$0.655 but we maintain our BUY rating as current balance sheet strength suggests that GAR is well-equipped to handle any turbulence.
Source: Carey Wong (OCBC)
