Golden Agri-Resources lands back in the black with $129.1b in FY16 profits

Thanks to a forex gain.

Golden Agri-Resources (GAR) flourished back into the black in FY16, as it posted a net profit of US$94.1m (roughly $129.1b) versus a loss of US$3.2m ($4.39m) in 1Q15. Though this was thanks to a forex gain, core earnings still came in at US$40m ($54.88m).

According to a report by OCBC, revenue was slammed by lower crude palm oil (CPO) production and low CPO market prices as revenue slipped 4% to US$1.49b. Nonetheless, GAR did see improved margins thanks to its integrated business model.

OCBC states that should the trend in 1Q16 persist, GAR expects its CPO production to further fall by 10-15% this year, which is even lower than its initial expectation of a 8-10% fall. It is also slightly worse than the industry’s 5-10% drop on back of the more matured profile of its plantations, which average now 16 years.

To reduce its age profile, GAR expects to dole out $70m to replant as much as 10k ha this year. In 1Q16, it had replanted about 1.3k ha.

Going forward, OCBC states that GAR’s margins should remain stable. GAR anticipates the impact to be offset by the climbing CPO prices, supported by the biodiesel mandate.

Further, management believes its current effort to boost its downstream business will continue to optimise margins via further vertical integration of its operations.

Moreover, GAR also plans to build another biodiesel plant and logistics facilities to boost its integrated operations for US$110m.

“Management noted that one reason for the more stable margins is having the benefit of a ‘destination book’, where it is able to sell directly to the end customers, as opposed to selling to middlemen previously,” OCBC states.