Saturday, January 31, 2015

NAV limitations: A comparison of Golden Agri and First Resources

Using Q3 latest results the NAV of Golden Agri and First Resources are

USD 0.69 and USD 0.66 respectively, and given the Shares price of

$0.42 and $1.865, and using a exchange rate of 1USD : 1.35, the discount and premium to NAV are:

(55%) discount and 110% premium

What a big difference isn't it? There are good reasons for the difference. First, a big part of the asset is from the item Biological assets, which is the plantations that produce the fruit punch used to make CPO.

Look at the two profile of plantations:

50% of Golden Agri plantation is of prime age and and 27% is beyond, whereas First resources has a 30% of planatation at prime age and only 13% beyond it. Also, First resources is still actively investing and growing the plantation size.

The growth for Golden Agri is relatively muted. However, Golden Agri has a wild card, it has a  Verdant Fund LP, which has concession for 220,000 ha in 201, with an additional 40,000 ha for small holder (out-grower) plantations. GAR is the worlds second-largest palm-oil plantation company, with a total planted area of 464,600 ha in Indonesia. The terms of the contract, which are valid for 65 years (with an option to extend an additional 33) are for palm oil plantations, out-grower schemes, and the construction of a new port.

There is little updates from Golden Agri since 2012, so if we were to take reference from this source:

"The company advertizes it will produce over 1 million tons of palm oil, directly employ 40,000 people, and develop infrastructure. 220,000 ha are leased to GVL, plus an additional 40,000 ha for out-growers to produce palm oil, but as of April 2013 only 6,000 ha were planted. The surrounding 100 ha around the port is also the property of GVL. 5% by volume was to be sold domestically at local market rates – therefore allowing 95% of the product to be exported. "

When there is no official presentation from golden agri, we can relate only on third parties website like this. The website contain GVL response to the complaint, while progress is made, I would only think it is one big mess before the fund/ project become positive to Golden Agri

Next Assumption of valuation:

Golden Agri 2013 AR:
Significant assumptions made in determining the fair values of the oil palm plantations are as follows:
(a) No new planting or re-planting activities are assumed;
(b) Oil palm trees have an average life of 25 years, with the first three years as immature and remaining
years as mature;
(c) Yield per hectare, based on average historical performance;
(d) Discount rate of 8.5% (2012: 9.4%) per annum; and
(e) Average market price of CPO of US$966 (2012: US$923) per tonne.

First Resources:

First Resources has higher discount rate and lower projected selling price of CPO, is using Level 3 fair value measurement whereas golden agri is using Level 2 fair value measurement. 

The difference:

Fair Value Hierarchy
The following table presents financial assets and financial liabilities measured at fair value and classified by
level of the following fair value measurement hierarchy:
(a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
(b) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (that is as prices) or indirectly (i.e. derived from prices); and
(c) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

You understand the above? I don't, I just know First resource computation is more conservative. I do not know the equation of computation, otherwise I could do a sensitivity test.


Now is the tough part.

It is established that First resources should definitely command a premium over golden agri in terms of NAV, but the gap is really super BIG.

Is is a 55% discount over 109% premium, and we did not go into other qualitative aspect of Golden Agri as a Vertically integrated player of CPO.

If I would exposure to CPO recovery, I would still choose Golden Agri over First Resources, what about you?


  1. Replies
    1. Hi Yeh,

      Thanks for the recommendation, I did take a look at various commodity players like Noble, Wilmar etc.

      First budbear is the yield is too super low, just like Agri.

      Also, they are too diversed to make correlation to any price movement meaningful.

      I find Noble more interesting than Wilmar though ...

    2. hi mike
      u do the above analysis? very Pros...

    3. Yeh?

      Pro? U think I can get a job as a analyst too?

      Anyway, between winning foolishly or losing money intelligently, I prefer the formwr

    4. Yes. You can do a career shift.

      Well. I just looks at financial ratio. Do not really do deep analysis leh.

      Sometime I just follow others buy buy.
      Some i earn, some i lose.

      I just looks at their financial data. If healthy then I buy.

      I still stick to my rule. Buy blue chip better.

  2. Hi Silly investor

    Good job and thanks in highlighting that.

    Ive never really studied and analyzed commodities as they are in a cyclical nature but they sure looked beaten these days as hell. We will see if those days are gone or when they are rising back.

  3. Hi B,

    I am wondering if Golden Agri price can fall enough to give a more respectable 4% yield? If I have that, I would be more intersted.

    I do not think that will be forecoming. Because when it hit 30 cents, I do but think dividend will remain the same.

    The widija family need to show people they are willing to scale back Capex during such bad times, increase cash flow and increase payout. That will be a catalyst! But I seriously do not think they will do so this.

  4. You are still far from being an analyst. No sweet talk from me, in finance you get shit on your face. But I appreciate your effort.

    The few things you overlooked:

    Forecast of palm oil future and USD versus palm oil inventory and forecast, why market is right and why wrong
    Weather forecast and statistic, e.g El Nina, El Nino
    Correlation as pertain to crude oil is 0.1 (can be found on malaysian palm oil futures web, google it if unsure), but is it purely 0.1 and why?
    Most industrial fertilizers are derived from crude oil. Labor are of Indonesian, rupiah in cost. No cost analysis from you.
    GAgr decides to let their oil palm plantations expire, why? Any new partners in hand? What technology are there to grow new shoots? What they gonna do with expiring trees?
    What other investment are they getting into?
    Upward to downward integration? Possible?!?!
    Apart from biological asset, factories and grants are a big deal. Grants gives sudden cash spike.
    Depreciation gives a big discretion.
    Widjaja family history not shown. They have defaulted big on banks before.

    In summary, you analyze asset and partial cash flow. No analytic for management, tail risk factor, cost, general economic climate. In any time when you do that, your report can be sold as a market product.

    Meanwhile those who look at only balance sheet figures, numbers are not finance, that's called primary school maths.

    Edwin Ng,
    Team lead for CFA-SG 2012 FICS construction and agriculture sector

    1. Hi Edwin,

      I really appreciate your long comment. I read it through at least 3 times, especially the areas which one could look at. Some of it like the management track records and its precedessor I did look at it, just didn't include it as the post it's about NAV.

      an analyst is said in jest, I know I am not up to it, but do people really buy companies analyst report?? I thought it comes free with the brokerage account.

      Thanks ago, it is so much easier to just ignore this post. I am still looking at commodity plays. Including Wilmar and Noble. Good to be able to see it in different lights.

      What u mentioned are mostly Macro factors, Nino, CPO price etc, but the execution also make hell of a difference, just like at crushing profits at Wilamr and Goldan Agri at China, is there any company specific items that one should not overlooked?

      It seems branding does matter a lot

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