Genting Plantations saw its 1QFY22 core earnings surging by 70% to RM114m after stripping out foreign exchange changes (RM2m). The results were in line with our and the street expectations, making up 20% and 21%, of full-year estimates respectively. The strong set of results was driven by stronger plantation earnings. No dividend was declared for the quarter. Maintain Neutral with an unchanged TP of RM7.94.

• 1QFY22 revenue (QoQ: -51%, YoY: -1.1%). The steady topline of RM530m was mainly driven by stronger plantation sales. Plantation sales jumped 37% YoY to RM360.5m, lifted by an increase in CPO prices despite a margin drop in FFB production. Average CPO prices rose from RM2,916/mt to RM4,797/mt while 1QFY22 FFB production slipped to 437k mt, dragged by lower production from Indonesia due to high rainfall, mitigated by a strong recovery in Malaysian production. Property sales fell 31% YoY to RM16.5m, dragged by softer property sales recognition from Genting Indahpura project. Downstream manufacturing sales dropped 39% YoY to RM153m.

• 1QFY22 core earnings jumped to RM114m. Stripping out the exceptional items, the Group’s core earnings jumped 70% YoY to RM114m. Plantation pre-tax profit gained 61% YoY to RM250m, spurred by stronger plantation margin. 1QFY22 all-in CPO production cost was marginally higher at RM/mt. Biotechnology segment made a narrower loss of RM0.1m on lower R&D expenditure. Downstream manufacturing segment returned to the black with a small profit of RM3.7m, supported by biodiesel earnings due to the lucrative margin in by-product, glycerine despite seeing losses in refining due to stiffer competition. Meanwhile, earnings contribution from the jointly owned Johore Premium Outlet (JPO) and Genting Premium Outlet (GPO) jumped 47% YoY to RM10m following the uplifting of interstate travel ban.

• Outlook. Management maintains its FFB production growth of 5% for FY22, led by double-digit production growth from Indonesia. CPO production cost (with palm kernel credit) for 2022 is expected to rise from RM1,900/mt to RM2,200/mt, led by new minimum wage policy in Malaysia and a surge in fertilizer cost. It also targets to replant another 4k ha for this year 1QFY22: 400ha). Due to high rainfall in most of its estates in Indonesia, fertilizer application reached only 6%, which is behind the schedule. The heavy rainfall in Indonesia has severely affected the harvesting activities as it destroyed the infrastructure. The group sees a 250% jump in fertilizer price (nitrogen and phosphorus) in the recently concluded tender interview Meanwhile. The group has sold forward about 12% of total production. Unbilled property sales stood at RM42m as of end-1QFY22. Meanwhile, the footfall for each premium outlet has almost recovered to pre-Covid level after doubling footfall in 1QFY22. Capacity utilization for the loss-making refining business slipped to 20%. Lastly, management expects the provision for prosperity tax kicks in the subsequent quarters.

Source: PublicInvest Research - 26 May 2022