Investment Highlights

• We maintain BUY on Genting Plantations (GenP) with a higher fair value of RM6.80/share vs. RM6.55/share previously. We have raised GenP’s FY24F net profit by 4% to account for a stronger average CPO price assumption of RM3,700/tonne compared to RM3,500/tonne originally.

• Our revised fair value is based on FY24F PE of 18x, which is the 5-year mean for large cap planters. We ascribe a 3- star ESG rating to GenP.

• GenP’s annualised core net profit (ex-unrealised forex loss of RM3.5mil) was 13% above our forecast but within consensus. GenP’s 9MFY23 core net earnings of RM193.8mil exceeded our expectations due to a betterthan-expected plantation EBITDA margin. We have raised GenP’s FY23E net profit by 14% to account for this.

• GenP’s 9MFY23 core net profit fell by 51.3% YoY as palm product prices dived and cost of production increased. Average CPO price slid by 17.8% to RM3,517/tonne in 9MFY23 from RM4,277/tonne in 9MFY22. However, FFB production growth was 5.3% YoY in 9MFY23.

• GenP’s all-in cost of CPO production rose to RM2,650/tonne in 9MFY23 from RM2,370/tonne in 9MFY22 as costs of wages and fertiliser climbed. Comparing 3QFY23 against 2QFY23, however, cost of production declined to RM2,330/tonne from RM2,760/tonne as CPO output increased.

• Downstream EBITDA slid to RM4.1mil in 9MFY23 from RM35.1mil in 9MFY22 as demand for refined palm products and biodiesel fell amidst stiff competition from Indonesia. EBITDA margin shrank to 0.5% in 9MFY23 from 3.2% in 9MFY22. Average utilisation rates were 23% for the biodiesel plant and 22% for the refinery in 9MFY23.

• Comparing 3QFY23 against 2QFY23, GenP’s core net profit grew by 19.7% to RM82.7mil as FFB production improved. FFB output expanded by 16.9% QoQ in 3QFY23. Average CPO price was RM3,409/tonne in 3QFY23 vs. RM3,584/tonne in 2QFY23.

• GenP is currently trading at a FY24F PE of 15x, which is below its 5-year average of 17x.

Source: AmInvest Research - 23 Nov 2023