Blue chip with PE of a penny - Golden Agri

Golden Agri has risen 7.5% to 56.5 cents this morning.

Indonesia government has announced a a few initiatives that will benefit Golden agri.

1) Tax incentives for companies that employed a lot of workers and export at least 30% of products
(Plantation play are labour intensive and golden agri export majority of the CPO)

2) Increase the amount of Biofuel in Diessel. Malaysia has also announced similar policy earlier, taken together, it should increase demand for CPO, and given crude oil will most probably stay high due to Egypt instability, the stars are now somewhat favorable for CPO prices.

BUT,

Indonesia need more than words, they need actions to convince investors.

Yes, stock price went up yesterday but there were 106,244,000 shares that were short-sold. What does that mean?

www.sgx.com/wps/wcm/connect/sgx_en/home/...hortSell20130826.txt

Palm oil companies are taking a hit. Look at Indo Agri Resources. would this be an interesting buy in anticipation of an industry recovery?



IndoFoodAgri 14 Aug 2013: 85% drop in profit to S$8.4 million for Q2.

Gross profit declined from 29% in Q2 2012 to 16% for current Q2,

Plunging gross profit by 50% to S$67.4 million.


H1 profit attributable to shareholders declined 72% to S$21.6 million.

Earnings per share of 1.5 cents Singapore as compared to prior year H1 of 5.5 cents.

NAV per share is S$1.21.

Total debt S$965 million = gearing of 34%.

On annualised EPS, its current PE is 28 times.

Joes – An excellent opportunity to buy commodity stocks, including palm oil plantation stocks, is always when the commodity price of the stocks drops to or below its production cost. – [low downside risk but high potential capital gain]. Many investors, who did this in past decades when Malaysian palm oil stocks were traded on the Singapore stock exchange, were known to reap very hefty capital gains when palm oil price subsequently recovered.

According to some reports, the current cost of production of palm oil in Malaysia ranges from RM 1,200 to RM 1,900 per metric ton. I would certainly be accumulating good palm oil plantation stocks (at prevailing market price) any time the palm oil price dips below RM 1,900 level.

Too early to get in still??

Golden Agri: Headwinds remain

Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, could continue to underperform with average CPO prices down 22% YoY and 2% QoQ in 3Q13. Outlook for CPO prices is also likely to remain muted, with stockpiles growing faster than expected going into 2H13. Market watchers are expecting an excess supply of oilseeds (soy, corn etc) to further weigh on CPO prices. Meanwhile, the impasse over the raising of the US debt ceiling could send the US economy into a recession, further weighing on global sentiment. In light of the headwinds ahead, we maintain our SELL rating on the stock with an unchanged fair value of S$0.465. (Carey Wong)/OCBC

Brennen Pak

Golden Agri is very highly dependent on CPO price, and has a co-relationship as high as 0.8 with CPO price. I think the CPO is now in the medium range, but crept up a bit in the past weeks or so. That probably explains why Golden Agri shareprice also went up a bit. However, crude palm oil is also subject to other kind of competition such as soya, and that explains its volatility.....my opinion.