Investment Highlights

• We are upgrading Genting Plantations (GenP) from HOLD to BUY with a higher fair value of RM11.20/share vs. RM10.40/share previously. Our fair value for GenP is based on a higher FY19F fully diluted PE of 27x vs. 25x originally. We have raised our PE assumption from 25x to 27x for GenP as we think that plantation stocks would be re-rated when CPO prices recover in 2Q2019.

• We like GenP for its low production cost per tonne in Malaysia, young oil palm trees in Indonesia and recurring income from the premium outlets. GenP’s production cost (all-in) is estimated at RM1,350/tonne in Malaysia in FY19F vs. RM1,300/tonne in FY18E.

• Although higher in FY19F vs. FY18E, GenP’s production cost per tonne in Malaysia is still one of the lowest among the companies under our coverage. Average age of GenP’s oil palm trees is young at 10 years. About 10% of GenP’s pre-tax profit come from the Johor and Genting Highlands Premium Outlets.

• We expect GenP’s FFB production to increase by 6.8% in FY19F compared with 14% in FY18E. GenP’s FFB production is anticipated to grow at a lower rate in FY19F vs. FY18E mainly due to the replanting of ageing oil palm trees in Sabah and weaker FFB yields.

• Indonesia is envisaged to drive GenP’s FFB output growth in FY19F. We reckon that GenP’s FFB output in Indonesia would climb by more than 30% in FY19F on the back an increase in mature areas of 4,600ha. Indonesia is anticipated to account for almost 45% of GenP’s FFB production in FY19F.

• Production cost in Indonesia is envisaged to be flat at RM2,200/tonne in FY19F. We believe that economies of scale from higher CPO production in Indonesia would help offset increases in production cost on a per tonne basis.

• We expect GenP’s share of net profit in the two premium outlets to grow by 20% in FY19F. Earnings growth in FY19F is anticipated to be underpinned by a higher number of visitors. This is expected to be partly driven by the opening of the 20th Century Fox Theme Park at Resorts World Genting in 1HFY19.

Source: AmInvest Research - 7 Sept 2018