Investment Highlights

• Maintain SELL on Genting Plantations (GenP) with an unchanged fair value of RM10.84/share as the group's valuations are expensive. Our fair value for GenP implies a fully diluted FY18F PE of 25.2x.

• GenP's 1QFY17 results were within our expectations but below consensus estimates. GenP's results would have been stronger by RM29mil if not for the CPO, which were sold to the group's refining unit. The refining unit held the CPO as inventory as there were not enough vessels or ships to transport the refined products out from Lahad Datu yet. It is uncertain if the rise in the level of inventory would persist going forward as GenP is still trying to adjust its processing and the level of shipments at the refinery.

• Currently, there is only one shipment going out per month. GenP said that it can increase the number of shipments to two per month. Due to the palm refinery, the group held about 18,000 tonnes of CPO inventory as at end-March 2017 compared to the usual level of 6,000 to 8,000 tonnes.

• GenP's palm refinery recorded a marginal loss in 1QFY17. Average utilisation rate of the refinery is 20% currently. GenP hopes to increase the utilisation rate to 50% going forward. The palm refinery, which commands an annual capacity of 600,000 tonnes, started operations in January 2017.

• GenP's core net profit surged by 120.4% YoY to RM82.7mil in 1QFY17 on the back of higher CPO price and production. Average realised CPO price climbed from RM2,273/tonne in 1QFY16 to RM3,053/tonne in 1QFY17 while FFB output expanded by 28.6%. Average palm kernel price rose from RM1,866/tonne in 1QFY16 to RM3,097/tonne in 1QFY17.

• GenP's Indonesia unit recorded an EBITDA of RM59.0mil in 1QFY17 against RM12.3mil in 1QFY16. FFB production in Indonesia jumped by 48.0% YoY in 1QFY17. Indonesia accounted for 41.9% of GenP's plantation EBITDA and 38.4% of FFB output in 1QFY17.

• GenP hopes to achieve an FFB output growth of more than 15% in FY17F. In the coming few months, we understand that FFB production growth may moderate. FFB production of the Malaysia division may be flat or higher by single-digit YoY against 19% in 1QFY17 while in Indonesia, FFB output may increase by more than 30% compared with 48% last quarter.

• GenP's production cost (all-in) was RM1,250/tonne in Malaysia and RM1,550/tonne in Indonesia in 1QFY17. For the full year, GenP hope to achieve a production cost of RM1,300/tonne in Malaysia and RM1,800/tonne in Indonesia.

Source: AmInvest Research - 30 May 2017