Genting Plantations saw its 9MFY21 core earnings doubling to RM284m after stripping out i) impairment loss on PPE (RM30.9m) ii) deferred income for government grant (RM13.7m) and iii) foreign exchange changes (RM2.6m) The full-year results were below our expectation but it exceeded the street expectations, making up 65% and 80%, respectively. The weaker-than-expected results were mainly due to higher effective tax rate of 29% and a steep decline in premium outlet rental contribution. Nevertheless, we expect to see a strong catch-up in the final quarter in view of the current CPO price performance. No dividend was declared for the quarter. Maintain Neutral with an unchanged TP of RM8.23.

• 3QFY21 revenue (QoQ: -7.3%, YoY: +13.5%). The stronger topline of RM732.8m was contributed by plantation segment. Plantation sales jumped 170% YoY to RM525.4m, lifted by an increase in CPO prices despite weaker FFB production. Average CPO prices rose from RM2,504/mt to RM3,502/mt while FFB production slipped 2% YoY to 528k mt, dragged by a drop in Malaysian production due to the lagged effects of drought along with its replanting activities, partially cushioned by 10%-20% growth in Indonesia, attributed to increased harvesting areas and higher yields. Property sales fell 2.1% YoY to RM16.5m, dragged by softer property sales recognition from Genting Indahpura project. Downstream manufacturing sales dropped 16% YoY to RM384m on account of weaker sales volume in biodiesel and refining products due to unfavourable palm oil-gasonline spread and stiff competition from Indonesian counterparts.

• 3QFY21 core earnings jumped to RM102m. Stripping out the exceptional items, the Group’s core earnings jumped 51% YoY to RM102m. Plantation pre-tax profit nearly doubled to RM234.3m, spurred by stronger plantation margin. 9MFY21 all-in CPO production cost dropped to RM1,895/mt on higher palm kernel credit. Biotechnology segment made a narrower loss of RM0.7m on lower R&D expenditure. Downstream manufacturing earnings doubled to RM25.4m on account of higher margins but was partly moderated by lower sales volume. Meanwhile, earnings contribution from the jointly-owned Johore Premium Outlet (JPO) and Genting Premium Outlet (GPO) tumbled 86% YoY to RM1.4m due to the restricted interstate travelling during the lockdown period.

• Outlook. Management guided that the West and Cerntral Kalimantan regions are experiencing wet weather condition, which has affected the harvesting activities and transportation. Due to that, management expects to see a stagnant growth for FY21 FFB production and it targets 5%-8% growth for 2022. CPO production cost for 2022 is expected to increase by 10%-15%. It also targets to replant another 4,000ha for next year. Meanwhile, the footfall for the premium outlets has recovered to pre-covid level since Sept following the easing of interstate travelling. Commenting on prosperity tax and foreign sourced income, management sees muted impact as none of its subsidiary exceeded the threshold of RM100m profit and it does not rely on Indonesian earnings for dividend payout.

Source: PublicInvest Research - 25 Nov 2021