Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with an unchanged fair value of RM9.72/share. Our fair value for GenP is based on an FY21F PE of 27x.

• GenP has declared a higher interim gross DPS of 6 sen in 1HFY20 compared with 3.5 sen in 1HFY19. We have assumed a gross DPS of 14 sen for FY20E, which implies a yield of 1.4%.

• GenP’s 1HFY20 core net profit of RM104.4mil (ex-forex gain of RM9.5mil) was below our estimates but 20% above consensus. We have reduced GenP’s FY20E net profit by 12% to account for a lower share of net profit in joint ventures and a flat FFB production.

• Inside GenP’s 1HFY20 reported net profit were net gains of RM18.3mil on a parcel of land sold to the government and sale of a factory in Bangi, Selangor.

• GenP’s core net profit rose by 58.0% YoY to RM104.4mil in 1HFY20, underpinned by robust palm product prices in 1QFY20, a positive minority interest of RM12.4mil and a low effective tax rate of 21.6% (1HFY19: 29.7%). We believe that the positive minority interest is attributed to losses in an Indonesian subsidiary.

• On a negative note, GenP’s share of net profit in associates and joint ventures (mainly Premium Outlets) fell by 44.8% YoY to RM12.5mil in 1HFY20 while downstream EBITDA slid by 53.8% to RM16.0mil.

• The Premium Outlets in Johor and Resorts World Genting did not perform well as restrictions on inter-state travel during the movement control order (MCO) affected visitorship and sales in 2QFY20.

• Downstream EBITDA tumbled by 53.8% YoY in 1HFY20 as refining margins shrank and biodiesel demand fell during the MCO in 2QFY20.

• GenP’s average CPO price improved by 26.8% to RM2,485/tonne in 1HFY20 from RM1,960/tonne in 1HFY19. On a quarterly basis, average CPO price eased by 11.2% to RM2,325/tonne in 2QFY20 from RM2,619/tonne in 1QFY20.

• GenP’s FFB production slipped by 11.2% YoY to 949,000 tonnes in 1HFY20. We believe that the group’s FFB output would improve from 2QFY20 onwards. Comparing 2QFY20 against 1QFY20, GenP’s FFB production rebounded by 14.7% to 515,000 tonnes.

• Net gearing was 34.4% as at end-June vs. 35.0% as at endMarch 2020. GenP’s operating cash flows amounted to RM162.3mil in 1HFY20 vs. RM130.9mil in 1HFY19

Source: AmInvest Research - 27 Aug 2020