Surprise in 2Q09 Yields… GGR’s 2Q09 FFB yields came in 22% higher than our estimate and 4% above 2Q08. Indonesian-wide FFB yields, which suffered from tree stress since 2H08, is now back to normal, we think. …Drive EPS Upgrade. 2Q09 net profit came in 54% above our estimates on positive operating leverage unleashed from the higher-than-expected CPO production/sales volume. We revise our EPS estimates higher to account for the higher CPO production/sales volume and margins.
CPO Stocks Remain Tight: Despite the recovery in Indonesian production yields in 2Q09, global CPO stocks remain tight in the near term for two reasons: 1) Yield stress is not over in Malaysia. We see yield recovery only in 2010 for Malaysia; and 2) CPO export demand remains robust.
Best Upside within Coverage: Our 2009-11e EPS estimates are 27% above consensus, mainly on our higher CPO price assumption. Currently, GGR has the best share price upside of 20% within our coverage universe. Near-term catalysts: 1) Consensus earnings upgrade; 2) Firm CPO price trend going into Ramadan festival; and 3) Good 3Q09 results in November 2009.
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