Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with a higher fair value of RM10.00/share vs. RM9.72/share previously. Our fair value for GenP is based on an FY21F PE of 27x. We have raised GenP’s FY21F net profit by 3.0% to account for a higher average CPO price of RM2,500/tonne compared with RM2,400/tonne originally
• GenP’s 9MFY20 results were within our expectations but about 8.0% below consensus. We are keeping our FY20E net profit forecast for GenP.
• GenP’s 9MFY20 core net profit grew by 82.8% YoY to RM153.8mil (ex-disposal and forex gains of RM21.5mil) underpinned by higher plantation earnings and a lower effective tax rate. GenP’s effective tax rate fell to 21.9% in 9MFY20 from 29.6% in 9MFY19 due to lower tax rates in certain jurisdictions and income not subjected to tax.
• The 50.2% YoY increase in plantation EBITDA in 9MFY20 helped compensate for a 37.4% decline in downstream earnings and a fall of more than 30% in the share of net profits in the Johor and Genting Highland Premium Outlets. Restrictions on inter-state travelling had affected the number of visitors and spending at the Genting Highlands and Johor Premium Outlets in 9MFY20.
• GenP recorded an average CPO price of RM2,478/tonne in 9MFY20 compared with RM1,963/tonne in 9MFY19. On a negative note, FFB production slid by 7.9% YoY in 9MFY20. Also, GenP’s all-in production cost rose to an estimated RM2,010/tonne in 9MFY20 from RM1,880/tonne in 9MFY19.
• Comparing 3QFY20 against 2QFY20, GenP’s core net profit surged by 191.2% to RM67.7mil on higher CPO prices and production and a recovery in downstream division. Average CPO price realised climbed to RM2,504/tonne in 3QFY20 from RM2,325/tonne in 2QFY20. FFB production expanded by 4.5% QoQ in 3QFY20 as the oil palm trees entered the peak production period in Malaysia.
• Downstream EBITDA dived by 37.4% YoY to RM27.9mil in 9MFY20 due to a drop in demand for refined palm products in 2QFY20. EBITDA margin shrank to 2.6% in 9MFY20 from 4.4% in 9MFY19.
• In its results announcement, GenP said that the outlook for the downstream division is expected to be challenging in the remaining months of the year. Demand is envisaged to remain uncertain in light of Covid-19. Also, the price spread between palm oil and gas oil is unfavourable currently.

Source: AmInvest Research - 26 Nov 2020