Investment Highlights

• We maintain BUY on Genting Plantations (GenP) with an unchanged fair value of RM6.80/share, based on FY25F PE of 18x, which is the 5-year average for large-cap planters. We ascribe a neutral 3-star ESG rating to GenP.

• On an annualised basis, GenP’s 1QFY24 core net profit of RM40.1mil (ex-unrealised forex gains of RM2.8mil) was 9% below our expectations but within consensus. GenP’s results were disappointing due to a weaker-than-expected plantation EBITDA margin and lower-than-estimated property and downstream earnings. We have reduced GenP’s FY24F net profit by 8% to account for these.

• GenP’s core net profit eased by 4.5% YoY to RM40.1mil in 1QFY24 as its effective tax rate climbed to 34.7% from 26.8% in 1QFY23. GenP attributed the increase in effective tax rate to non-deductible expenses.

• Operationally, GenP’s plantation EBITDA rose by 23.7% YoY to RM146.9mil in 1QFY24 due to a drop in fertiliser costs. Average realised CPO price inched up by 1.6% to RM3,643/tonne in 1QFY24 from RM3,585/tonne in 1QFY23. FFB production was flat YoY in 1QFY24.

• GenP expects to achieve a FFB production growth of 5% in FY24F. Cost of production is estimated to fall below RM2,500/tonne in FY24F from RM2,580/tonne in FY23 with fertiliser costs envisaged to decline by 20%-30%.

• Downstream EBITDA plunged to RM0.9mil in 1QFY24 from RM10.9mil in 1QFY23 as demand was poor and processing margin weak. EBITDA margin inched down to 0.5% in 1QFY24 from 5.2% in 1QFY23. Average utilisation rates were 27% for the biodiesel plant and 35% for palm refinery in 1QFY24.

• Comparing 1QFY24 against 4QFY23, GenP’s core net profit shrank by 37.7% to RM40.1mil as FFB output dived by 20.8% and cost of production per tonne rose. On a positive note, average CPO price was higher at RM3,643/tonne in 1QFY24 vs. RM3,395/tonne in 1QFY23.

• GenP is currently trading at an attractive FY25F PE of 15.9x, which is below its 5-year average of 17x.

Source: AmInvest Research - 30 May 2024