Golden Agri eyes reaping 15% profit growth

Amid clearing excess inventory.

According to Macquarie Research, GGR will likely post decent growth versus weak comps as it clears excess inventory.

Here's more from Macquarie Research:

The US$133m we expect for 3Q12 would imply 13% YoY, and 15% QoQ growth. But even if GGR hits that estimate, consensus will have to consider the likelihood of GGR delivering another ~US$150m in 4Q12, which it has implicitly pencilled in.

We model US$103m for 4Q12, based on our CPO price forecasts (there should also be no more excess inventory to clear by then).

CPO price should rise in 1Q13. We agree with consensus’ call that CPO prices will rise from current levels.

The CPO price looks oversold and should be able to buy demand at current levels. There is also a seasonal tightening of CPO stocks in the early part of every year.

But we think the rise will fall short of market expectations, certainly over the course of 2013. GGR shares are highly correlated to CPO prices over the long term (88% since 2007).

But while GGR shares have tracked CPO prices over the last three months, they have outperformed the CPO price by 4ppts since the start of 2012, and by 11ppts since the start of 2011.