Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with a lower fair value of RM8.30/share vs. RM8.90/share previously. Although we have raised GenP’s FY22F net profit by 6.7% to account for a higher average CPO price of RM3,000/tonne vs. RM2,800/tonne previously, we have reduced our PE assumption to 22.0x from 25.0x. This is to reflect a sector de-rating due to ESG risks.

• For FY21E, we have raised GenP’s net profit by 5.2% to account for a higher average CPO price of RM3,100/tonne vs. RM3,000/tonne originally. GenP’s annualised 1HFY21 results were 5.0% above our forecast and 7.4% above consensus estimates.

• After a weak 1QFY21, which was affected by losses in the downstream division, GenP’s core net profit (ex-forex loss of RM0.8mil) surged by 73.0% QoQ to RM105.1mil in 2QFY21.

• The downstream division swung to an EBITDA of RM24.0mil in 2QFY21 from a loss of RM5.9mil in 1QFY21 on the back of timely purchases of feedstock. Earnings of the division could have been higher in 2QFY21 if not for the impairment of RM17.0mil for the biorefinery plant.

• Comparing 1HFY21 against 1HFY20, the downstream division recorded a slightly larger EBITDA of RM18.1mil vs. RM16.0mil. EBITDA margin rose to 2.7% in 1HFY21 from 2.4% in 1HFY20.

• Share of net profit in associates (mainly premium outlets) dived by 41.6% to RM7.3mil in 1HFY21 as the ban on inter state travelling affected the number of visitors.

• On a positive note, EBITDA of the plantation division surged by 76.7% to RM387.5mil in 1HFY21 on the back of robust palm product prices. Average CPO price realised rose by 24.9% to RM3,105/tonne in 1HFY21 from RM2,485/tonne in 1HFY20.

• However, GenP’s FFB production growth was unexciting at a mere 2.6% YoY in 1HFY21. The small rise was supported mainly by the Indonesia division, which recorded a 20% YoY rise in FFB output in 1HFY21. On a quarterly basis, plantation EBITDA improved to RM232.3mil in 2QFY21 from RM155.2mil in 1QFY21. Average CPO price realised was RM3,250/tonne in 2QFY21 vs. RM2,916/tonne in 1QFY21. FFB production surged by 21% QoQ in 2QFY21.

• GenP expects its FFB production to grow between 3% and 5% in FY21E. FFB output is expected to reach its highest level in 4QFY21. 2H is expected to account for 55% of the full year’s FFB production while 1H is estimated to account for 45%.

Source: AmInvest Research - 26 Aug 2021