Investment Highlights

• We maintain SELL on Genting Plantations (GenP) with an unchanged fair value of RM8.00/share. Our fair value for GenP is based on a FY23F PE of 22.0x. We ascribe a 3-star ESG rating to GenP.

• In spite of a higher than expected CPO price, GenP’s annualised 1QFY22 net profit was within our forecast but 8% below consensus estimates. GenP’s results fell short of market expectations due to weaker than expected downstream (biodiesel and refining) earnings.

• GenP’s refining unit was in the red in 1QFY22 dragged by a drop in sales volume. We understand that customers are rationing demand. Also, competition for supply of CPO in Sabah is stiff. Average utilisation rate of the refinery was 20% in 1QFY22.

• After adjusting for a higher average CPO price of RM4,500/tonne vs. RM4,000/tonne previously but weaker downstream earnings, our FY22F net profit for GenP is relatively unchanged.

• GenP’s core net profit (ex-unrealised forex gains of RM2.0mil) expanded by 88.7% to RM114.7mil in 1QFY22 from RM60.8mil in 1QFY21 on the back of a surge in CPO prices. Also, share of net profit in associates (mainly premium outlets) rebounded by 47.1% YoY to RM10.0mil in 1QFY22 as the relaxation of inter-state travelling spurred visitor patronage and spending.

• EBITDA of the plantation division climbed by 56.3% to RM565.6mil in 1QFY22 from RM361.9mil in 1QFY21. Average CPO price realised increased to RM4,797/tonne in 1QFY22 from RM2,916/tonne in 1QFY21 while average palm kernel price rose to RM4,114/tonne from RM2,385/tonne. FFB production growth was -0.9% YoY in 1QFY22.

• GenP’s downstream division (refining and biodiesel) registered an EBITDA of RM3.7mil in 1QFY22 compared with a loss of RM5.9mil in 1QFY21. On a YoY basis, refining margin improved in 1QFY22 although on a QoQ basis, EBITDA margin slid to 2.4% from 2.8%. Downstream turnover plunged by 73.3% QoQ to RM152.7mil in 1QFY22.

• GenP’s all-in cost of production rose to RM2,075/tonne in 1QFY22 from RM1,980/tonne in 1QFY21 dragged by higher costs of fertiliser. Fertiliser costs are expected to surge by 2.5x YoY in FY22F due to a global supply shortage.

Source: AmInvest Research - 26 May 2022