Golden Agri downgraded to Sell by Daiwa after earnings miss

Singapore two-dollar bills

Daiwa downgraded Golden Agri-Resources to Sell from Underperform after first-quarter results missed its forecasts and amid signs of another challenging year ahead for the palm-oil producer.

“We see a further derating in the shares given our bearish view on near-term CPO prices in 2018,” Daiwa said.

Golden Agri-Resources reported its first-quarter net profit fell 68 percent on-year to US$12 million, while revenue fell 11 percent on-year to US$1.82 billion. Revenue fell on a combination of lower palm oil production and lower CPO prices, the company said in a filing to SGX before the market open on Tuesday.

Daiwa said the results missed its forecast on a combination of weaker-than-expected volumes and EBITDA margin performance. EBITDA stands for earnings before interest, tax, depreciation and amortization.

With the average CPO price down by 3 percent so far in the second quarter, compared with the previous quarter, margins could remain under pressure, it said in a note on Tuesday.

It cut its 2018-20 earnings per share (EPS) forecasts by 23-32 percent after lowering its fresh fruit bunches (FFB) production growth outlook for this year to 7.2 percent from 8.1 percent on-year previously and after lowering its EBITDA margin assumptions.

That spurred a target price cut to S$0.23 from S$0.33.

Separately, UOB KayHian downgraded Golden Agri to Sell from Hold and cut its target price to S$0.26 from S$0.31. It lowered its 2018-20 earnings forecasts by 22-29 percent to factor in potentially lower palm and laurics segment EBITDA margins.

The stock ended Wednesday down 2.86 percent at S$0.34.