■ 1Q15 slow
1Q15 NPAT US$17m (-83% YoY, nm QoQ). Core net profit, which excludes FX losses, was US$52m (-48% YoY, +13% QoQ) - 21% of full-year estimates (vs. 24% & 25% FY13, FY14 Street cons NPAT). As for most plantation peers, the quarter was impacted by FFB volumes declining 7% YoY (weather impact from a very dry 1H14) as well as poor prices.
■ FFB volume declined 7% YoY to 1.7mt
Plantations/mills EBITDA US$101m (-41% YoY, -16% QoQ), driven by -7% YoY, -12% QoQ change in FFB volumes, with CPO 0.5mt, -9% YoY, -12% QoQ & 20% YoY decline in prices. EBITDA margin at 30% vs. 34% 1Q14. Besides poorer prices, margins were also impacted by inventory buildup of 26k in the quarter (vs. a drawdown in 1Q14). RSPO complaint (on PT Kartika Prima Cipta) will likely lead to a hold on new plantings.
■ Downstream better sequentially, but weaker YoY
Downstream (palm laurics) EBITDA US$22m (-27% YoY, +116% QoQ). Margin 1.5% vs 1.8% 1Q15 and 0.7% 4Q14). We expect to see better margins on efforts to further optimize facilities and as Indonesia embarks on its biodiesel program. A further US$170m of capex to add 1.2mt in refining capacity. GAR is managing oilseeds in China better, with EBITDA US$2m (vs. – US$3m YoY 1Q14), its second sequential quarter of profits. This is under review via M&A /sale. There is also better contribution from JVs (1Q15 US$1.8m, 1Q14 -US$0.6m) due to an expanded/optimized fleet.
■ Guidance and takeaways from ASEAN Conference
GAR has reduced its FFB production guidance, from the initial 5-10% growth, to up to 5% growth this year. Yields are expected to be slightly lower this year, due to effects from dry weather, but offset by a larger area turning mature. GAR expects to work towards break-even levels for its oilseeds business in China for 3Q15, which had troubled it for some years now. It has the intention to divest these assets in China and has been in talks with potential buyers – with an aim to close the deal in H215.
■ Maintain Buy rating, TP unchanged
GAR stock price performance has been impacted by weaker CPO prices, poor FFB volumes as well as poor oilseeds margins. At the margin, its downstream & other operations are improving and capex will also decline from US$457m FY14 to US$300m FY15, -35% YoY). GAR has repurchased 103m shares (S$43m) YTD. Positive catalyst will have to come from better prices. (Read Report)
Source : Citi Research