Bloomberg News

Golden Agri Forecasts Higher Palm-Oil Output on Expansion

November 23, 2011

(Adds closing share price in fifth paragraph.)

Nov. 23 (Bloomberg) -- Golden Agri-Resources Ltd., the world’s second-largest oil-palm planter, said that output will increase as plantations are expanded in Indonesia and new trees mature, bolstering profitability.

“We do expect to plant more areas and therefore have additional production in the coming years,” Executive Director Rafael Buhay Concepcion Jr. said in an interview, without giving a forecast for volumes. “That, complemented by fairly strong prices, should continuously provide us pretty good results.”

Rising harvests from Singapore-based Golden Agri may contribute to increased output from Indonesia, the world’s largest producer. The company, which has 17 “buy” calls from analysts among the 21 recommendations tracked by Bloomberg, was looking at acquisitions, Concepcion said, without giving details.

“Definitely there will be growth,” said Concepcion, speaking by phone from Jakarta yesterday. The company produced 1.58 million tons of crude palm oil in the first nine months of 2011, 24 percent more than a year earlier. Production in 2010, totaled 1.85 million tons, down from 1.91 million in 2009.

Shares in Golden Agri fell 1.5 percent to 66 Singapore cents in Singapore, valuing the company at S$8.01 billion ($6.14 billion). The stock has lost 17.5 percent this year as the benchmark Straits Times Index declined 16 percent.

‘Good Improvement’

“Last year, the growth was poor, so this year they see quite a good improvement in production, but we shouldn’t expect that to happen every year,” Ivy Ng, an analyst at CIMB Group Holdings Bhd., said today. “The more-normal growth, excluding abnormality in weather, should be around 5 to 10 percent roughly. This is better than the Malaysian players -- those who have not expanded into Indonesia are doing less than 5 percent growth.”

About 33 percent of Golden Agri’s estates are less than six years old, which is considered as young to immature, said Ng, who has a “trading buy” on the stock. As these areas mature, that will be “the key driver for their growth,” she said.

Palm-oil demand is rising in India and China, the two largest importers, as economic growth boosts incomes. Demand growth for food remains strong, with no sign of a slowdown in gains in emerging-market consumption, the International Monetary Fund said in its World Economic Outlook on Sept. 20.

Futures on the Malaysia Derivatives Exchange, the global benchmark, traded at 3,135 ringgit ($986) per ton at 5:13 p.m. in Kuala Lumpur, on course for the first quarterly gain since the final three months of 2010. So far this year, prices have averaged 3,267 ringgit per ton, set for a record.

‘Planting Aggressively’

Total output in Indonesia may climb to as much as 25 million tons in 2012, from 23.5 million tons this year, as area and yields climb, the Indonesian Palm Oil Association said Nov. 16. Newly planted areas in the country may reach 350,000 hectares (864,868 acres) in 2011, surpassing expectations as smallholders are “still planting aggressively,” UOB Kay-Hian Holdings Ltd. wrote in a report yesterday.

Golden Agri will add at least a further 20,000 hectares of plantations this year, and expects to plant as much as 30,000 hectares in 2012, Concepcion said. The company has a total planted area of 448,900 hectares, which includes smallholders, according to a Nov. 11 earnings statement.

Third-quarter profit rose 10.5 percent to $109.6 million, the company said on Nov. 11. Revenue climbed 62 percent to $1.56 billion, according to a stock-exchange filing.

Adverse weather can affect Golden Agri’s production by about 10 percent, the impact of which is usually offset by higher prices, said Concepcion. “Prices usually adjust up larger than the real reduction in production,” he said.

Palm oil has climbed 6.7 percent since Oct. 31 on concern that a La Nina weather event and seasonal monsoon rains will hurt harvesting. La Nina, caused by a cooling of the Pacific Ocean, can increase rainfall in Malaysia and Indonesia.

--Editor: Jake Lloyd-Smith

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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