Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with a lower fair value of RM9.90/share (vs. RM10.00/share previously). We have raised GenP’s FY21F net profit by 10.4% to account for a higher average CPO price assumption of RM3,000/tonne vs. RM2,500/tonne previously.

• However in arriving at GenP’s fair value, we have reduced the PE assumption to 25x from 27x. We believe that ESG concerns would be a drag on the valuations of palm oil companies in Malaysia.

• GenP’s FY20 results were within our forecast and consensus. GenP’s core net profit (ex-forex losses of RM2.4mil) climbed by 75.3% to RM256.8mil in FY20 on the back of higher plantation earnings and a lower effective tax rate. GenP’s effective tax rate declined to 22.3% in FY20 from 29.7% in FY19 due to lower tax rates in certain jurisdictions and income not subjected to tax.

• GenP has declared final and special gross DPS of 15.0 sen for 4QFY20, which brings total gross DPS to 21.0 sen for FY20. We have forecast a gross DPS of 22.0 sen for FY21F, which translates into a yield of 2.4%.

• The 56.4% surge in GenP’s plantation EBITDA in FY20 compensated for the 42.6% drop in downstream earnings and 34.9% fall in share of net profit in associates (mainly premium outlets).

• The premium outlets in Johor and Resorts World Genting did not perform well in FY20 as restrictions on inter-state travelling drastically reduced visitorship.

• GenP’s average CPO price realised rose by 22.6% to RM2,511/tonne in FY20 from RM2,048/tonne in FY19. On the other hand, FFB production fell by 5.0% in FY20 due to the lagged impact of the drought and haze, which took place in 3QFY19.

• Downstream EBITDA tumbled by 42.6% to RM33.5mil in FY20 dragged by lower demand for refined palm products during the movement restriction period in 2QFY20 and weaker export demand for biodiesel. Also, EBITDA margin was squeezed by a higher cost of feedstock in 4QFY20. EBITDA margin of the downstream division was 2.3% in FY20 vs. 4.2% in FY19.

• GenP expects to achieve a FFB production growth of 5% to 8% in FY21F. The group hopes to maintain an all-in cost of production of RM1,860/tonne in FY21F as a higher volume of CPO output offsets increases in fertiliser costs and wages. Fertiliser prices are envisaged to rise by 7% in FY21F.

Source: AmInvest Research - 25 Feb 2021