3 main culprits behind Golden Agri's 58% earnings crash

Badly hurt by lower CPO prices.

According to DBS, Golden Agri (GGR) booked 2Q13 core earnings of US$45.9m (-60% q-o-q, -58% y-o-y) - significantly below its expected range of US$110-126m.

DBS noted 3 key reasons for this underperformance.

Here's more:

(1) Drop in CPO prices. Realised 2Q13 ASP was US$811/MT (vs. US$801 forecast); US$806/MT in 1Q13 and US$1,084/MT in 2Q12. – representing a 25% drop y-o-y.

(2) Drop in output. Instead of exhibiting a seasonal recovery, the group's 2Q13 own FFB output dropped by 9% q-o-q; while its smallholders output dropped by 7% q-o-q - as the low crop had shifted.

We understand this was due to palm tree's biological cycle following a bumper crop last year. As a result, 2Q13 CPO production dropped 11% y-o-y to 481k MT (vs. our expectation of 561k MT).

(3) Higher than expected operating expenses. We previously expected a 38% y-o-y drop in FY selling expenses (on lower export taxes) and a relatively flat G&A.

Instead, GGR reported a smaller 22% y-o-y drop in 1H13 selling expenses and 18% yo-y increase in 1H13 G&A expense – which we suspect was due to aggressive hiring of senior management YTD.