Dry season: Golden Agri’s Q2 profit plunges 50% on back of massive oilseed losses

Earnings per share dived by over 70%.

The second quarter did not give Golden Agri the bumper profit that it was expecting, beating analyst expectations and disappointing shareholders in the process.

According to a report by Barclays, Golden Agri’s operating profit plungedby 50% to US$80m, on the back of a massive US$40m loss in its Chinese oilseed business.

“Golden Agri has a materially smaller oilseed crushing business compared with that of Wilmar. However, the EBITDA loss of US$40mn in the quarter was higher than the US$3mn loss in 1Q14. We estimate that the lack of economies of scale has been the key driver for Golden Agri reporting larger losses than its domestic peers. Wilmar had a loss (PBT) of US$57mn in 1Q14 in its oilseed business, which turned into a small profit of US$4n in 2Q14, in a similar market environment,” noted the report.

Here’s more from Barclays:
This was significant in the context of its relatively smaller size with 2.3mt crushing capacity while Wilmar in our coverage with 20mt of crushing capacity made a positive PBT of US$4mn in 2Q14.

The large q/q deceleration in earnings and lower CPO prices will continue to put pressure on GGR's earnings for a while even if we were to annualize the 1H14 profit for full-year 2014, in our view.

The large miss at the bottom line was driven by a forex loss of US$22mn in the quarter. Despite the lower net income, net debt at US$2.3bn was in line with our estimate although it saw an increase of US$300m in first six months of the year.

CPO production was up 10% q/q, which has largely offset the decline in benchmark CPO price from US$820/t in 1Q14 to US$800/t in 2Q14. The EBITDA from the plantation business at US$160mn was marginally lower q/q from US$171mn in 1Q14. The company produced a total of 761kt of own palm products compared with 690kt in 1Q14.