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 FY17 results were within consensus estimates and our expectations. Included in GenP's net profit was a gain of RM10.6mil on the disposal of three oil palm estates in Johor to the government.

• GenP has declared a final gross DPS of 20.5 sen in 4QFY17, which brings gross DPS to 26 sen in FY17 (FY16: 21 sen). We have forecast a similar gross DPS of 26 sen in FY18F, which implies a yield of 2.7%.

• GenP's EBITDA climbed by 12.8% from RM562.2mil inFY16 to RM634.4mil in FY17 underpinned by higher CPO prices and production. Average CPO price rose by 3.2% from RM2,631/tonne in FY16 to RM2,715/tonne in FY17 while FFB production surged by 16.7%.

• GenP's FFB production in Indonesia jumped by 38% in FY17 while in Malaysia, FFB output improved by 8%. Indonesia accounted for 35.3% of GenP's FFB production in FY17. The Indonesia unit recorded an EBITDA of RM168.2mil in FY17 vs. RM103.2mil in FY16.

• GenP's FY17 net profit would have been higher if not for the unsold inventories of refined palm products. These inventories amounted to 24,000 tonnes as at end-4QFY17 compared with 25,000 tonnes in 3QFY17 and 18,000 tonnes in 2QFY17. If the 24,000 tonnes of refined palm products were sold, they would have generated earnings of RM44mil.

• GenP is hopeful that its production cost (all-in) in Malaysia would be RM1,250 to RM1,300/tonne in FY18F vs. RM1,270/tonne in FY17. The group cannot give FY18F cost guidance for the Indonesia unit yet. Breaking it down geographically, all-in production costs were RM1,270/tonne in Malaysia (FY16: RM1,264/tonne) and RM2,150/tonne in Indonesia (FY16: RM1,900/tonne) in FY17.

• GenP hopes to achieve an FFB production growth of 20% in FY18F. This is expected to be driven partly by the addition of 20,000ha of mature areas in Indonesia. The increase in new mature areas in FY18F is anticipated to be underpinned mainly by the acquisition of 12,893ha of oil palm estates from Lee Rubber.

Source: AmInvest Research - 27 Feb 2018