Parched Golden Agri sees no end to profit drought

Its quarterly results were the worst since 1Q09.

The worst is not yet over for Golden Agri-Resources, which posted its worst set of quarterly results since 1Q09 early in November. According to OCBC, although GAR’s share price tumbled some 13.7% to an intraday low of $0.44 on December 1, this value remains unattractive because GAR’s troubles are far from ending yet.

OCBC notes that uncertainty over crude prices could continue to weigh on crude palm oil prices, mainly due to the bio-diesel link. CPO demand is also expected to slide as winter approaches, because palm oil solidifies at much higher temperatures compared to other vegetable oils.

"In view of the recent development, we are paring our FY15 CPO assumption to US$700/barrel (also driven by the stronger USD/MYR rate); while this would lead to a 3.3% reduction in our FY15 earnings forecast, our fair value remains unchanged at S$0.44 (still based on 13.5x FY15 EPS) due to the higher USD/SGD assumption," stated the report.

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