Investment Highlights

• We maintain SELL on Genting Plantations (GenP) with an unchanged fair value of RM10.08/share. Our fair value for GenP is based on an FY20F PE of 29x.

• GenP’s FY19 core net profit (ex-forex loss of RM4.4mil) of RM146.5mil was within consensus estimates and our expectations. We believe that GenP’s FY19 net profit would have been higher if the group had not incurred a fair value loss of RM30mil on commodity futures contracts.

• GenP has declared a final gross DPS of 9.5 sen for 4QFY19, which brings total gross DPS to 13.0 sen for FY19 (FY18: 13 sen). We have forecast a gross DPS of 14 sen for FY20F, which translates into a yield of 1.4%.

• GenP reported a higher core net profit (ex-forex loss of RM0.6mil) of RM62.3mil in 4QFY19 vs. RM18.1mil in 3QFY19 underpinned by a higher CPO price and production. Average CPO price was RM2,278/tonne in 4QFY19 compared with RM1,968/tonne in 3QFY19. GenP’s FFB output rose by 6.2% QoQ in 4QFY19 driven by the Indonesian division.

• Comparing FY19 against FY18, GenP’s core net profit slid by 3.3% to RM146.5mil from RM164.9mil. Although plantation EBITDA dropped by 13.6% to RM336.9mil in FY19, this was cushioned by a 421.4% surge in downstream EBITDA and a 16.0% rise in share of net profit in its Premium outlets.

• Average CPO price fell by 3.3% to RM2,048/tonne in FY19 from RM2,117/tonne in FY18. Average palm kernel price dived by 29.9% to RM1,179/tonne in FY19 from RM1,681/tonne in FY18. GenP recorded an FFB production growth of 5.3% in FY19.

• All-in production cost rose to RM1,850/tonne in FY19 from RM1,700/tonne in FY18 due to higher fertiliser costs and lower palm kernel credits.

• GenP’s downstream division’s EBITDA climbed to RM58.4mil in FY19 from RM11.2mil in FY18 underpinned by higher sales of biodiesel and refined palm products. GenP sold about 120,000 tonnes of biodiesel in FY19 compared with only 40,000 tonnes in FY18. EBITDA margin of the division was 4.2% in FY19 vs. 1.2% in FY18.

• GenP expects its FFB to grow by 5% in FY20F driven by Indonesia. All-in group production cost may fall to RM1,750/tonne in FY20F from RM1,850/tonne in FY19 due to higher CPO production and a 10% fall in fertiliser costs. Fertiliser costs are estimated to decline to RM930/tonne from RM1,030/tonne in FY18. GenP has locked in fertiliser volume and price for FY20F.

Source: AmInvest Research - 27 Feb 2020