Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with an unchanged fair value of RM8.30/share. Our fair value for GenP is based on an FY22F PE of 22.0x. We ascribe a three-star ESG rating to GenP. GenP is currently trading at an FY22F PE of 18.3x. We forecast a dividend yield of 3.2% for GenP in FY21E.

• We have assumed that GenP’s FFB production would improve by 3.5% in FY21E compared with a decline of 5.0% in FY20.

• Indonesia is expected to drive the group’s FFB output growth in FY21E. GenP is envisaged to enjoy an increase in mature areas of 1,500ha in Indonesia in FY21E. Indonesia is anticipated to account for 55% to 60% of GenP’s FFB production in FY21E. Currently, there are no major weather issues at GenP’s oil palm estates in Indonesia and Malaysia.

• In Malaysia, GenP’s FFB production is expected to stagnate in FY21E due to the replanting of ageing oil palm trees in Sabah and Peninsular Malaysia. GenP is envisaged to replant about 4,000ha in FY21E. Replanting cost until maturity is estimated to be RM17,000/ha to RM20,000/ha. GenP does not face significant labour problems as it is only 5% short of workers in Malaysia.

• GenP’s all-in cost of production is anticipated to be unchanged at RM1,800/tonne in FY21E (1HFY21: RM1,870/tonne). Although the cost of fertiliser is envisaged to be 5% higher in FY21E, this would be compensated by economies of scale resulting from an increase in CPO production. Looking ahead to FY22F, we believe that industry cost of CPO production per tonne would increase in FY22F as fertiliser costs have risen by 30% to 40%.

• We forecast GenP’s downstream (refining and biodiesel) EBITDA to be RM30.0mil in FY21E vs. RM33.5mil in FY20. Although the downstream division swung into an EBITDA of RM24.0mil in 2QFY21 from a loss of RM5.9mil in 1QFY21, there is risk that EBITDA margin may be eroded by high costs of feedstock in 2HFY21.

• GenP’s biodiesel plant is currently operating at a utilisation rate of 20% while the palm refinery in Sabah is operating at an utilisation rate of 50%. Sales volume of biodiesel dropped by 75% YoY in 1HFY21. Export sales for biodiesel is weak as fossil fuel is cheaper. Currently, CPO is more expensive than gasoil by about US$458/tonne.

Source: AmInvest Research - 17 Sept 2021