Golden Agri-Resources' profits crash 67.7% to US$409.6m

Here's what to blame.

According to OCBC Investment Research, Golden Agri-Resources reported a disappointing set of FY12 results.

OCBC adds, although revenue was up 2% at US$6051.75m, or 7% above its forecast, reported net profit saw a 67.7% tumble to US$409.6m; this following the 95% decline in fair value gains on biological assets.

Here's more:

Excluding that and other exceptional items, core earnings would still have fallen 29% to US$404.3m, or 14% below our estimate. GAR has declared a final dividend of S$0.006/share, bringing its total payout to S$0.0119, versus S$0.0184 in FY11.

Besides the still-weak CPO prices (GAR achieved an ASP of US$975/ton versus US$1085 in FY11), the group continued to see another increase in its CPO stockpile. Inventory at end Dec has risen by another 8%, or 37k tons, to 520k tons, as demand from China and India remained sluggish.

According to management, this is an excess of some 200k tonnes above its usual holding of ~320k tons.

Nevertheless, GAR remains upbeat that it can reduce the surplus by end 1H13, citing a growing demand for bio-fuel as current CPO prices (<US$900/ton) already make it viable as an alternative for crude oil.

Management also remains relatively upbeat about its prospects, as it still sees robust demand growth for CPO as an edible oil from emerging and development countries; CPO prices are likely also supported by the limited supply growth of other vegetable oils.

For 2013, it plans to expand its plantations by 35-45k ha via organic growth and acquisition (already in talks to complete the purchase of 16k ha of mature plantation by 1H13). All in, it expects to spend US$550m in capex to both expand upstream and downstream operations.

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