Brokers’ take: RHB downgrades Golden Agri to ‘neutral’ after earnings disappointment

RHB Research downgraded its call on Golden Agri-Resources : E5H 0% to “neutral” from “buy”, while slightly lowering its price target to S$0.29 from S$0.30.

Its move came after the palm oil company’s latest set of full-year financials fell short of the research house’s estimates, mainly due to higher-than-expected tax rates and unit costs.

On Thursday (Feb 29), RHB analysts said they now view Golden Agri as fairly valued, given how it is trading at an 8.2 times price-to-earnings ratio based on RHB’s FY2024 estimates – which is at the higher end of the stock’s peer range of six to nine times.

Based on the group’s management guidance for fresh fruit bunches (FFB) output growth and unit costs for 2024, RHB also tweaked its assumptions to result in lower FY2024 to FY2025 earnings by 12 to 14 per cent.

The research house lowered its FFB growth forecasts to 0 to 2 per cent, from 2 per cent.

“While we expect moderate earnings growth in 2024 to come from lower unit costs, we believe valuation is now fair,” said its analysts. 

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They nonetheless highlighted the possibility of higher crude palm oil (CPO) sales volumes in the first quarter of FY2024, given how CPO inventory levels remained “relatively high” as at the end of the year at 650,000 tonnes.

This is compared with Q3 FY2023 levels at 615,000 tonnes, and normalised levels of 440,000 tonnes. 

“This could have resulted in lower CPO sales volume in FY2023, which should be delivered in Q1 FY2024.”

Shares of Golden Agri were trading flat at S$0.27 as at 10.44 am on Thursday.