Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with an unchanged fair value of RM10.00/share. Our fair value for GenP is based on a FY21F PE of 27x.  
   
• We forecast GenP’s net profit to improve by 35.7% in FY21F. GenP is expected to benefit not only from higher palm prices and production in FY21F but also earnings recoveries in the premium outlets and downstream division.  
   
• We expect GenP’s 50% share of net profit in the premium outlets to rise by 20.0% in FY21F as the number of visitors improves on the easing of travel restrictions in 2QFY21. Share of net profit in the premium outlets is estimated to account for 12.0% of GenP’s FY21F net profit.  
   
• Due to restrictions on inter-state and overseas travelling in FY20, the Johor and Genting Highlands Premium Outlets suffered from a plunge in the number of visitors.  
   
• We reckon that GenP’s share of net profit in the premium outlets would fall by 30.0% in FY20. Normally, Johor Premium Outlet attracts about four million visitors per year while Genting Highlands Premium Outlet receives about five million visitors annually.  
   
• We think that GenP’s FFB production would expand by 8.0% in FY21F compared with a fall of 6.0% in FY20E. Underpinning the increase in the group’s FFB output in FY21F are enhancements in FFB yields and an increase in mature areas in Indonesia.  
   
• We forecast that GenP’s FFB yield to be 19.0 tonnes/ha in FY21F vs. 17.9 tonnes/ha in FY20E. We think that GenP would record a 2.0% rise in mature areas in Indonesia in FY21F. We anticipate GenP’s FFB yield to recover in FY21F after being affected by the lagged impact of 3Q2019’s drought and haze in FY20E.  
   
• We believe that GenP’s all-in production cost would remain flat at RM2,000/tonne in FY21F. Higher palm kernel credits are envisaged to compensate for higher costs of wages and fertiliser. Fertiliser costs are expected to increase by 5% in FY21F. We also anticipate a higher cost of wages as GenP strives to keep its estate workers from returning to Indonesia or joining other companies.

Source: AmInvest Research - 26 Jan 2021