Investment Highlights

• We upgrade Genting Plantations (GenP) to BUY from HOLD as our unchanged fair value of RM6.55/share implies an upside of 15% above the group’s current share price. Our fair value 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 1HFY23 core net profit (ex-unrealised forex loss of RM1.3mil) was 15% above our forecast but 19% below consensus. GenP’s earnings exceeded our estimates as plantation profits surged in 2QFY23. GenP’s plantation EBITDA climbed by 56.1% QoQ to RM185.5mil in 2QFY23 as the group sold 23,000 tonnes of CPO inventory brought forward from 1QFY23. We have raised GenP’s FY23E net profit by 15% to account for this.

• Comparing 1HFY23 against 1HFY22, GenP’s core net profit dived by 66.4% to RM111mil in 1HFY23 due to a drop in palm product prices and an increase in the cost of CPO production.

• Average realised CPO price declined by 26.3% to RM3,584/tonne in 1HFY23 from RM4,860/tonne in 1HFY23. FFB production growth was 2.6% YoY in 1HFY23.

• GenP’s all-in cost of CPO production rose to RM2,850/tonne in 1HFY23 from RM2,190/tonne in 1HFY22 as costs of wages and fertiliser increased.

• GenP’s downstream EBITDA plunged to RM7.3mil in 1HFY23 from RM27.3mil in 1HFY22 as demand for refined palm products and biodiesel weakened. EBITDA margin slipped to 1.3% in 1HFY23 from 4.2% in 1HFY22. Average utilisation rates were 28% for the biodiesel plant and 25% for the refinery in 1HFY23.

• Comparing 2QFY23 against 1QFY23, GenP’s core net profit expanded by 64.7% to RM69.1mil due to higher sales volume of CPO and lower cost of production per tonne. Cost of production per tonne shrank to RM2,760/tonne in 2QFY23 from RM2,960/tonne in 1QFY23 on the back of a higher volume of output.

• FFB production climbed by 8.8% QoQ in 2QFY23. The average realised CPO price was flat at RM3,584/tonne in 2QFY23.

• GenP is currently trading at a decent FY24F PE of 16x, lower than its 5-year average of 17x and offers compelling dividend yields of 5%-6%.

Source: AmInvest Research - 24 Aug 2023