Golden Agri-Resources – First Quarter Results

Ser Jing - Golden Agri-Resources First Quarter Results (pic)Golden Agri-Resources (SGX: E5H) just released its first quarter results on Monday evening. The vertically integrated oil palm company saw its top-line for the quarter slip by 6% from last year’s US$1.52b to US$1.43b. Profits fell by an even larger percentage of 30% from US$162m to US$112.8m.

The main reason for the fall in Golden Agri’s revenue can be attributed to lower crude palm oil (CPO) prices. The company reports its results under two country headings: Indonesia and China. Let’s take a look at these two markets in greater detail.

Indonesia makes up 78% of the company’s revenue for the first quarter of 2013 (with China taking up the rest) and saw an 11% decline in quarterly revenue from US$1.26b a year ago to US$1.12b.

The Indonesian market actually saw higher sales volumes but it could not compensate for the lower quarterly-average selling prices of CPO, which declined by 25% from US$1,064 per tonne last year to US$797 per tonne. This ultimately led to a 32% year-on-year decline in quarterly profit from US$157.9m to US$106.7m.

Revenue from China came in at US$312.1m, 19% higher than last year’s US$261.5m. The company sold higher volumes of its main products (edible oil, soybean meal and noodle products) which helped drive the growth in revenue. The jump in China’s top-line trickled down to the bottom-line as it registered a 48% growth in quarterly profit to US$6.1m.

After looking at the hard-numbers, let’s turn to the company’s efforts in promoting sustainable palm-oil harvesting. Golden Agri’s not the only one concerned about the environmental impacts of its palm-oil operations. Fellow industry players such as Wilmar International (SGX: F34) and Noble Group (SGX: N21) are also participating in efforts to mitigate the environmental impacts of their business activities.

Last December, Golden Agri got awarded its first Indonesian Sustainable Palm Oil (ISPO) certification for its Riau, Indonesia plantations. Earlier in March 2013, the company embarked on a pilot project to conserve High Carbon Stock (HCS) forests in West Kalimantan, Indonesia, that’s expected to last for a year. Golden-Agri has commented that it will ‘continue to increase our production of sustainable palm oil”.

Regarding the future, the company believes that there’s robust growth in the demand for palm oil and it is expected to spend around US$550m on capital expenditures for the rest of the year. The money will be used, among other things; to expand its palm oil plantations by 35,000-45,000 hectares (that’s about 49,000 to 63,000 football fields); increasing its milling capacity; construction of downstream-processing capacity; and expansion of its distribution network and logistics facilities around the globe.

The Chairman and Chief Executive Officer of Golden-Agri, Mr Franky Widjaja, commented on the quarter’s performance: “We have started the year 2013 with better performance compared to the previous quarter and we are of the view that the outlook of palm oil industry is still promising. As expected, production during the first three months of 2013 was seasonally lower and inventory levels have started to normalise, which may provide support to CPO market prices.

To benefit from the robust industry outlook, and supported by our enhanced logistic facilities, we deepened our presence in existing markets within Southeast Asia and China; and penetrated new markets in Middle East and Africa.”

Shares of Golden Agri are currently selling for $0.53. Potential investors would be paying for 15 times the company’s last-12-months’ earnings and would get a dividend yield of 2.2% based on last year’s full year pay out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.