- In spite of Genting Plantations Bhd’s (GenP) weak results, we are keeping our BUY call as the group’s underlying performance is still healthy and we do not expect the charity donation of RM35mil to be repeated.

- We understand that GenP received a letter from Yayasan Gemilang 1 Malaysia requesting for donations in 1QFY13. The foundation aims to eradicate poverty and promote education, arts and sports. GenP’s plantation unit donated RM31mil while the property division donated RM4mil.

- The donations were almost half of what GenP’s net profit could have been in 1QFY13.

- The group’s Indonesia plantation division broke-even in 1QFY13 underpinned by its West Kalimantan operations. The latter registered an EBITDA of RM4.8mil in 1QFY13.

- However, this was offset by small losses in the Central Kalimantan unit. Although the palm oil mill in Central Kalimantan was completed in January 2013, commissioning is not in full swing yet due to insufficient crops.

- GenP’s FFB production growth was 32.4% YoY in 1QFY13, which partly cushioned the impact of a 27.9% decline in average CPO price realised.

- In spite of this, GenP’s FFB production is expected to expand by a smaller 15% in FY13F as FFB output in 2HFY13 may not be as strong as 2HFY12.

- In addition, FFB production in Indonesia is envisaged to climb by more than two-fold only, against previous expectations of three-fold. The lower estimates are due to the wet weather, land issues and labour shortage in Indonesia. FFB output in Indonesia is forecast to rise to 200,000 tonnes in FY13F from 81,287 tonnes in FY12.

- Production costs is expected to be RM1,400/tonne in FY13F mainly due to weaker palm kernel prices. Labour and fertiliser costs actually declined YoY in 1QFY13. We understand that fertiliser costs slid by 10% YoY in 1QFY13.

- Property division was a bright spot, recording an EBITDA of RM25mil in 1QFY13 versus RM5.9mil in 1QFY12, underpinned mainly by sales of industrial land.

- GenP booked in profits from sales of industrial land of RM20mil in Johor in 1QFY13. Proceeds from the sale of the land were RM85mil in 1QFY13.

- We understand that GenP is facing strong interest from buyers for its plots of industrial and commercial land in Johor, which is in line with the excitement in Iskandar.

Source: AmeSecurities