Golden Agri-Resources' net profit falls 22% to US$86m in 3Q12

China operations lost US$26m.

According to OCBC, Golden Agri-Resources (GAR) reported a weak set of 3Q12 results.

Here's more from OCBC:

Although revenue rose 7% YoY and 25% QoQ to US$1672.5m, aided by a strong production increase, reported net profit fell 22% YoY and 21% QoQ to US$85.9m; this was also weighed by its China operations turning in a net loss of US$26m in the quarter.

For 9M12, revenue fell 2% to US$4533.2m, meeting 82% of our original FY12 forecast, while net profit slipped 32% to US$356.0m, or just 65% of full-year estimate.

Declares 0.6 cent interim dividend
Interestingly, GAR also declared a first-ever interim dividend of 0.6 S cent, which management explains is the “best option” to reduce negative carry of excess cash. Recall that it raised some US$400m from its convertible bonds, originally intended for M&A activity, but is unlikely to happen in 4Q12.

GAR also points to the strong operating cashflow generated in 9M12 even though it still intends to spend US$500m in capex this year. As before, US$250m will be used toexpand its upstream assets and the rest for downstream capabilities.  

Paring earnings forecast on weak margins outlook
Although management maintains an upbeat outlook for the palm oil industry, citing the resilient demand for CPO, we note that nearterm issues remain. In particular, the growing stockpile, which hit 483m tonnes in 3Q12 from 431m in 2Q12, could take a while to clear.

As such, we are paring FY12 net profit by 17%. We believe that the street will similarly be looking to pare estimates to reflect the weaker-than-expected margins.