Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with an unchanged fair value of RM6.55/share, based on a FY23F PE of 18x. We ascribe a 3-star ESG rating to GenP.

• GenP’s 9MFY22 core net profit (ex-unrealised forex gains of RM18mil) was 25% below our forecast and 20% below consensus. We reduce GenP’s FY22E net profit by 26% to account for a lower EBITDA margin resulting from higher costs of production.

• GenP’s results were poor in 3QFY22 due to a surge in the cost of production. The group’s all-in cost of production increased to RM2,690/tonne in 3QFY22 from RM2,290/tonne in 2QFY22 dragged by higher costs of fertiliser and wages. Also, average CPO price shrank by 31% to RM3,368/tonne in 3QFY22 from RM4,907/tonne in 2QFY22.

• Comparing 9MFY22 against 9MFY21, however, GenP’s core net profit climbed by 49% to RM398mil on the back of robust palm product prices. Plantation EBITDA surged by 25% YoY to RM780mil in 9MFY22. This compensated for a 19% fall in downstream EBITDA.

• Average realised CPO price grew by 32% to RM4,277/tonne in 9MFY22 from RM3,246/tonne in 9MFY21. Average palm kernel price increased to RM3,093/tonne in 9MFY22 from RM2,284/tonne in 9MFY21. FFB production eased by 3% YoY in 9MFY22.

• Apart from strong CPO prices, GenP benefited from improved contribution from its premium outlets. GenP’s share of net profit in associates (mainly premium outlets) jumped to RM30mil in 9MFY22 from RM9mil in 9MFY21.

• GenP’s all-in cost of production rose to RM2,370/tonne in 9MFY22 from RM1,895/tonne in 9MFY21, dragged by higher costs of fertiliser, labour and transportation. The group’s fertiliser costs are envisaged to double in FY22E due to global shortages resulting from the Ukraine-Russia war.

• The 19% YoY decline in downstream EBITDA in 9MFY22 can be attributed to lower demand for refined palm products and biodiesel. Downstream EBITDA margin edged down to 3.2% in 9MFY22 from 4.1% in 9MFY21.

• GenP is currently trading at a decent FY23F PE of 18x vsits 2-year average of 21x.

Source: AmInvest Research - 24 Nov 2022