Golden Agri-Resources Ltd’s Stock Price Has Climbed 19% In 3 Months: Why Is That So?

Golden Agri-Resources Ltd (SGX: E5H) is an integrated palm oil company. In other words, the company has a presence in the entire value chain of the palm oil industry, from the growing of the palm fruit to the production of consumer end-products that are based on palm oil.

Over the past three months, Golden Agri-Resources’ stock price has climbed by 19%. Let’s try to understand what might have caused the gain.

Reasons for a higher share price

There are many reasons why a company’s share price could rise. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a company’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the company’s profit.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

In the case of Golden Agri, it might be the former at work. Why? In Golden Agri’s latest quarterly results (for the three months ended 30 September 2016), the company’s revenue improved by 17% year-on-year to US$1.8 billion. Meanwhile, its profit attributable to shareholders had turned from a negative US$16 million a year ago to a positive US$220 million.

What’s next

So, Golden Agri has clearly seen its business turnaround in the third-quarter of 2016. This may have led to its higher share price seen over the past three months.

But this raises the question: Is Golden Agri’s current turnaround sustainable? Let’s get some clues from the comments on Golden Agri’s outlook that were given by Franky Widjaja, the company’s chairman and chief executive, in the latest earnings release:

“In the second half of 2016, we have seen the CPO [crude palm oil] market price maintain its current level amidst the recovering palm production. For the 2016 results, we have achieved higher downstream margins so far resulting from our profit optimisation across the value chain. We continue to perfect our destination sales capability and integrated business model to achieve greater efficiency.

GAR is also working to maintain its leading sustainable upstream player position through best agronomic practices including higher yielding seeds and precision agriculture. It is this combination that will ensure that GAR is well positioned to benefit from the improvement in market conditions both at the upstream and downstream businesses.”

To sum it up, Golden Agri is working to improve the efficiency of its business and it expects to benefit from the recovery of CPO prices.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.