Here's why Golden Agri's 1H13 results are feared to mirror subsidiary's bad numbers

How bad could the implications be?

According to CIMB, Golden Agri's 1H13 results are expected to be in line with forecast but below consensus, if its 2Q net profit trend mirrors that of its subsidiary SMART, which owns 30% of the group's planted estates.

A 7% yoy drop in SMART's 2Q FFB output was a key surprise. This is below the group's guidance of 5-10% growth in FFB production for the full year, which is negative.

Here's more from CIMB:

Golden Agri is set to release its 2Q results on 2 Aug 2013 (Friday), after the market closes. We are retaining our earnings forecasts and target price – still based on CY14 P/E of 14x, in line with its historical average.

PT Sinar Mas Agro Resources and Technology (SMART), a 97.2%-owned subsidiary of Golden Agri, posted a 28.5% yoy decline in its 1H13 net profit to Rp795bn, mainly due to lower CPO selling prices. 2Q net profit fell 47% yoy and 56% qoq to Rp242bn.

The weaker performances were due to lower CPO selling prices and FFB production. Besides, we suspect that the sharper qoq drop in earnings was also due to the absence of gain from sale of inventory in 1Q13.

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