Here's why Golden Agri-Resources' 2Q12 results are not as bad as it looks

The 33% profit plunge was due to intentionally delayed shipments, says Nomura.

According to Nomura, 6M12 earnings made up only 41% of their previous full year estimates, and 42% of consensus.

Here's more from Nomura:

What does the result mean?
Although the headline numbers for 2Q12 seem disappointing, we note that this is primarily due to the intentional delays in shipments: excluding this, 1H12 would make up almost half of consensus full year estimates. Since the earnings contribution of these shipments will occur in 3Q, and with the underlying trends for FFB production growth and cost control looking quite bullish, we think GGR is on track to meet/beat our full year earnings estimates. The recent pullback in the stock is a good opportunity to accumulate, in our view.

Change in guidance?
• Nucleus FFB production growth still expected at 5-10%; likelihood of reaching 10% now seen to be higher.
• With fertiliser prices locked in for the rest of the year, cash cost per mt of nucleus CPO still expected to be ~USD300/mt in 2012.

Key numbers
2Q12 q/q
• Earnings dropped 33% q/q, primarily due to lower revenue, which fell 12% q/q, despite 4% higher CPO production, and fairly flat ASPs.
• Gross margins stayed intact, although a higher tax expense, non-operating items and the lower revenue on the largely fixed cost base caused the net margin to decline.
• The revenue decline was due to delayed shipments (inventory days shot up 51% q/q in 2Q, to a 4-year peak). Half of this was due to congestion at the ports, whilst the other half was actually intentional, to take advantage of the lower export taxes in July (15%) vs June (19.5%).
• According to the company, the intentionally delayed shipments would have increased recognised EBITDA by ~USD50mn; we estimate this would have increased net profits by ~USD37mn, bringing 6M12 earnings to ~46% of our full year estimates (i.e. well within the expected range).
• Nucleus cost per mt was kept at USD306/mt, vs USD290/mt in 1Q12. 6M12 y/y
• Earnings declined 34%, as lower revenue (-7% y/y) and weaker margins (EBIT margin: -3ppt, on the back of 9% lower ASPs and 8% higher cost of production, and a slightly greater proportion of 3rd party CPO sold) was accompanied by lower non-operating income and a higher effective tax rate.
• Nucleus FFB production growth accelerated to 5% y/y, from 2% in 3M12. v

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