Golden Agri downgraded to Sell by RHB on need for ‘aggressive replanting’

Indonesian rupiah notesIndonesian rupiah notes

RHB downgraded Golden Agri Resources to Sell from Neutral, saying the palm oil company needs “aggressive replanting” and cost management.

“While we believe 2019 will be a better year after an extremely weak 2018, we expect earnings to take some time to recover,” the brokerage said in a note on Monday.

It forecast fresh fruit bunches (FFB) growth amid Golden Agri’s replanting program, which intends to replant 10,000 to 15,000 hectare over the next few years, up from 5,000-7,000 hectares previously.

“This is aimed at rejuvenating its tree age profile, which is currently at around 16 years on average. We believe a more significant impact from the aggressive replanting activities will only be seen three to four years later,” it said.

The palm oil company manages around 500,000 hectares of palm oil plantations, according to its website.

RHB cut its 2018-19 earnings forecasts by 67 percent to 82 percent on lower crude palm oil (CPO) assumptions and higher unit cost projections. It slashed its target price on the stock to S$0.23 from S$0.39.

It forecast an average CPO price of US$596 a tonne for 2018, down 17.2 percent on-year, and US$553 a tonne for 2019.

The stock ended Tuesday down 3.70 percent at S$0.26.

Get the Shenton Wire morning briefing in your inbox