Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with an unchanged fair value of RM6.55/share. Our fair value for GenP is based on a FY24F PE of 18x, the 5-year mean for large cap planters. We ascribe a 3-star ESG rating to GenP.

• GenP’s annualised 1QFY23 core net profit (ex-unrealised forex loss of RM3.1mil) was 38% below our earlier forecast and 48% below consensus estimates. The group’s results fell short of our expectations due to lower-than-expected plantation EBIT margin. We have reduced GenP’s FY23E net profit by 40% to account for this.

• GenP’s core net profit plunged by 63.4% YoY to RM41.9mil in 1QFY23, dragged by weaker palm product prices and higher costs of production. GenP’s plantation EBITDA shrank by 52.5% to RM118.8mil in 1QFY23 from RM249.9mil in 1QFY22. All in, cost of CPO production increased to RM2,960/tonne in 1QFY23 from RM2,075/tonne in 1QFY22.

• Average realised CPO price declined to RM3,585/tonne in 1QFY23 from RM4,797/tonne in 1QFY22. Average palm kernel price fell to RM1,983/tonne in 1QFY23 from RM4,114/tonne in 1QFY22. On the bright side, GenP’s FFB production grew by 4% YoY in 1QFY23 due to higher FFB yields.

• GenP’s downstream EBITDA surged to RM10.9mil in 1QFY23 from RM3.7mil in 1QFY22. Demand for GenP’s refined palm products improved as competition with Indonesia eased. Also, there was a pick-up in demand for GenP’s biodiesel products. The EBITDA margin of the downstream division expanded to 5.2% in 1QFY23 from 2.4% in 1QFY22.

• Comparing 1QFY23 against 4QFY22, GenP’s core net profit slid by 41% to RM41.9mil as FFB production fell and cost of CPO production rose. FFB production slid by 13.8% QoQ to 457,000 tonnes in 1QFY23. Average CPO price inched down to RM3,585/tonne in 1QFY23 from RM3,620/tonne in 4QFY22.

• GenP is currently trading at a fair FY24F PE of 17x, which is in line with its 5-year average.

Source: AmInvest Research - 25 May 2023