Investment Highlights

• We are maintaining our BUY recommendation on Genting Plantations (GenP) with an unchanged fair value of RM11.50/share. Our fair value for GenP implies a fully diluted FY18F PE of 25x.

• GenP's 9MFY17 results were below consensus estimates and our expectations. We have reduced GenP's FY17F net profit by 3.4% to account for a lower-than-expected operating profit margin. GenP's inventory of refined palm products rose from 18,000 tonnes in 2QFY17 to 25,000 tonnes in 3QFY17. If these inventories were sold, they would have generated earnings of RM32.2mil to GenP.

• GenP is hopeful that it would be able to sell some of the refined palm products and realise some profits in 4QFY17. The group hopes to increase the utilisation rate of its palm refinery in Sabah from 45% in 3QFY17 to 60% in FY18F.

• GenP expects to achieve an FFB output growth of 15% in FY17F. The group hopes to record an FFB production growth of more than 15% in FY18F. New mature areas are estimated to be 17,000ha in FY18F partly underpinned by the acquisition of 12,893ha of planted land in Kalimantan from Lee Rubber.

• There are no issues with weather except at GenP's oil palm estates in the southern part of Central Kalimantan. Rainfall was less than 100mm each for two months. On a positive note, rainfall patterns at these estates have normalised in November.

• Production cost (all-in) is envisaged to be RM1,580/tonne in FY17F (9MFY17: RM1,630/tonne). Production costs (allin) were about RM1,300/tonne in Malaysia and RM2,000/tonne in Indonesia in 9MFY17. Fertiliser costs are expected to increase by 9% YoY in FY18F.

• GenP is of the view that a robust industry CPO production in Indonesia in 2018F may exert downward pressure on CPO prices. Industry experts have been predicting that CPO output in Indonesia would be healthy in 2018F due to the good rainfall received in 2017F.

• GenP's FFB production climbed by 24.6% YoY in 9MFY17. The group's FFB output in Indonesia expanded by 73.9% YoY in 9MFY17 while in Malaysia, FFB production improved by 7.4%.

• The Indonesia plantation unit recorded an EBITDA of RM140.6mil in 9MFY17 vs. RM34.0mil in 9MFY16. Indonesia accounted for 32.7% of GenP's plantation EBITDA and 36.5% of FFB production in 9MFY17

Source: AmInvest Research - 23 Nov 2017