Here's why tables will be turned for Golden Agri

2Q profit fell 26% mostly due to nasty CPO prices but there's still hope for a rebound.

According to CIMB, higher ending inventories and slower growth in CPO output threw a damper over Golden Agri’s 2Q12 results. But both these factors are expected to reverse in 2H and beef up earnings.

Here's more from CIMB:

At 48% of our full-year estimate and 44% of consensus, 1H12 core net profit is in line as rising production and the drawdown of inventory should lead to higher 2H earnings.

2Q core net profit fell 26% yoy due to lower selling prices, higher costs, forex losses and CPO stock as at end-June. Revenue for its Indonesian agri business fell 8% yoy as a result of lower CPO selling prices (-5%) and higher CPO stocks of 135,000 tonnes (+50,000 tonnes yoy) at end-1H12. The higher inventory which resulted partly from logistic issues allows the group to benefit from a lower export tax rate for CPO of 15% in July vs. 19.5% in June.

These factors, coupled with the higher cost of production of palm products (+5% yoy to US$307 per tonne), were the key reasons behindthe 21% yoy drop in 2Q EBITDA for the Indonesian agribusiness. EBITDA for the oilseeds crushing and refining business fell 10% to US$5m, which is commendable given the tough operating environment for China’s oilseed crushers.

We project stronger earnings in 2H as we expect a rise in sales volume, driven by a seasonal uptick in output and the drawdown of inventory. This should more than offset lower selling prices. Golden Agri hopes to reduce its inventory in the coming months and expects stronger 2H12 production. The group maintains its target of 5-10% output growth.

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