Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with a lower fair value of RM8.90/share (vs. RM9.90/share previously). Our fair value for GenP is based on a PE of 25x on FY22F EPS. We ascribe a three-star ESG rating to GenP.

• We have reduced GenP’s FY21F net profit by 9.3% and FY22F net profit by 12.2% to account for weaker downstream earnings and share of net profit in the premium outlets. GenP’s 1QFY21 net profit was about 15.8% below our forecast and 13.8% short of consensus estimates.

• Instead of rising, GenP’s core net profit (ex-forex gains of RM3.0mil) slid by 25.1% YoY to RM60.8mil in 1QFY21 dragged by losses in the downstream division and a 18.1% plunge in share of net profit in associates (mainly premium outlets).

• Downstream division (biodiesel and palm refining) swung to a loss of RM5.9mil in 1QFY21 from an EBITDA of RM14.1mil in 1QFY20. We believe that the division was hit by soft demand for biodiesel and high cost of feedstock in 1QFY21. Sales volume of biodiesel dived by 88% YoY in 1QFY21. Average utilisation rates were 14% for the biodiesel plant and 50% for the palm refinery in 1QFY21.

• Due to the ban on inter-state travelling, the performances of Genting Highlands Premium Outlet and Johor Premium Outlet were lacklustre in 1QFY21. The number of visitors fell by 50% YoY in 1QFY21. GenP’s share of net profit in associates was RM6.8mil in 1QFY21 compared with RM8.3mil in 1QFY20.

• Plantation EBITDA rose by 31.0% YoY to RM155.2mil in 1QFY21. Average CPO price realised was RM2,916/tonne in 1QFY21, 11.3% higher than the RM2,619/tonne realised in 1QFY20. FFB production eased by 1.8% YoY in 1QFY21.

• We believe that GenP’s average CPO price realised of RM2,916/tonne was below MPOB spot price of RM3,895/tonne in 1QFY21 due to forward sales and the group’s significant exposure in Indonesia. We reckon that about 50% to 60% of GenP’s FFB are from Indonesia.

• Looking ahead, GenP said that the outlook for the downstream segment will remain challenging in the rest of the year due to the unfavourable spread between palm oil and gasoil. Operating profit margin of the downstream division is expected to be squeezed in FY21F.

Source: AmInvest Research - 25 May 2021